KOSPI, Recovering the 2200 Level Is Not Easy

Stagnant Breakthrough of 2200 Level... Only 0.84% Rise in a Month
Individuals Net Bought 2.5412 Trillion Won This Month, but Foreigners Increased Selling Volume

[Asia Economy Reporter Song Hwajeong] The KOSPI is struggling to surpass the 2200-point mark despite being on the verge of reaching it. Continued selling pressure from major investors such as foreigners and institutions is making it difficult to recover the 2200 level.

According to the Korea Exchange on the 13th, the KOSPI had fallen 1.15% compared to the beginning of the year as of the 10th. It only rose 0.84% over the past month. During the same period, the KOSDAQ index increased by 3.59%. With the KOSPI’s sluggish trend continuing, recovering the 2200 level remains challenging. A month ago, the KOSPI touched the 2200 level multiple times during trading sessions, raising expectations for a recovery, but ultimately failed to hold and fell back. On the 7th, it rose to 2206.79 intraday but again failed to stabilize above 2200.

Despite steady buying by individual investors, it is insufficient to restore the 2200 level. Foreigners and institutions continue their selling trend. Since the beginning of this month, individuals have net purchased 2.5412 trillion KRW, but foreigners sold 1.6687 trillion KRW and institutions sold 740.2 billion KRW. In particular, the selling pressure from foreigners is expanding again. On a weekly basis, foreigners have maintained a selling streak for five consecutive weeks, selling over 1 trillion KRW last week, significantly increasing from 271.1 billion KRW the previous week. The scale of foreigners’ net selling reaching the trillion KRW level is the first time in eight weeks since mid-May.

The continued selling by foreigners and institutions is interpreted as a result of weakened investor sentiment due to the resurgence of COVID-19. Kim Yae-eun, a researcher at IBK Investment & Securities, said, "Concerns about economic slowdown due to the recent spread of COVID-19 are increasing market volatility. Although the index rose on expectations of economic improvement, further spread has dampened investor sentiment." She added, "For the market to show an upward trend, fundamental improvements (corporate earnings) are necessary, but there is still no certainty about this."

The return of foreign investors is expected to take more time. With global variables remaining largely unchanged, foreign capital inflows into emerging markets are expected only in the fourth quarter. Lee Seunghyun, a researcher at Korea Investment & Securities, said, "The global financial cycle, which is closely related to emerging market capital flows, is greatly influenced by U.S. monetary policy, the dollar exchange rate, and global risk appetite. With these three variables remaining largely unchanged, the global financial cycle is likely to hit a bottom and rebound around October."

Although financial markets have stabilized, the U.S. Federal Reserve’s accommodative monetary policy is expected to continue unless the economy recovers. The dollar exchange rate recently weakened due to supply-demand stabilization from expanded dollar liquidity, but considering the faster pace of U.S. economic recovery compared to Europe and other advanced countries, further weakening is expected to be limited. The volatility index (VIX) is also expected to remain at current levels until the COVID-19 spread in the U.S. subsides. The researcher explained, "If the global financial cycle bottoms out and rebounds in October, capital inflows into all emerging markets will also begin in earnest during the fourth quarter."