Will Foreigners and Institutions Join Forces to Push KOSPI Above 3300?

[Asia Economy Reporter Song Hwajeong] Foreign investors and institutions have both been net buyers since the beginning of this month, raising expectations for the KOSPI to break out of its box range.

According to the Korea Exchange on the 5th, foreign investors and institutions have net purchased 1.4333 trillion KRW and 1.4798 trillion KRW respectively in the KOSPI as of the day before this month. Thanks to the joint efforts of foreign investors and institutions, the KOSPI has risen for three consecutive days this month, recovering to the 3,280 level. Last month, foreign investors sold 5 trillion KRW and institutions sold 3.5 trillion KRW in the KOSPI, causing the KOSPI's nine-month consecutive rise to be halted and trapping it in the 3,200 range throughout July. With these two major investors both turning to net buying this month, there is hope for a recovery to the 3,300 level.

According to Hana Financial Investment, due to continuous selling since the beginning of the year, the foreign investors' holding ratio in the KOSPI has fallen to 32.8%, below the average level during the financial crisis. If the psychological unease toward emerging market stocks subsides, it is expected that foreign buying momentum could return. Lee Jaeseon, a researcher at Hana Financial Investment, said, "The relative strength between emerging and developed markets has sharply declined since July, remaining at the lowest level since August last year," adding, "If psychological anxiety gradually eases, bargain hunting in emerging market stocks could be possible."

Foreign investors and institutions also bought similar stocks. The most notable point is that they have switched to buying semiconductor stocks, which they had been continuously selling. Foreign investors have net purchased Samsung Electronics worth 1.0599 trillion KRW as of the day before this month, making it the most bought stock, and also net purchased SK Hynix by 72.8 billion KRW. During the same period, institutions also bought Samsung Electronics the most at 631 billion KRW, followed by SK Hynix with a net purchase of 222.6 billion KRW. Since the beginning of this year until last month, foreign investors and institutions had sold Samsung Electronics by 13.6 trillion KRW and 14 trillion KRW respectively, and SK Hynix by 1.2 trillion KRW and 2.7 trillion KRW respectively.

Besides semiconductor stocks, foreign investors and institutions bought similar stocks such as LG Chem, Kakao, SK Bioscience, Celltrion, and Kia, which were included among the top net purchases for both groups.

With foreign investors and institutions showing buying momentum, attention to large-cap stocks is expected to be necessary. The researcher said, "Large-cap stocks have shown weakness since the beginning of the year due to thin supply and demand from institutions and foreign investors, with relative strength compared to small and mid-cap stocks approaching the lowest level since 2019, a period of earnings decline," adding, "The proportion of estimated operating profit of large-cap stocks within the KOSPI for 2021 began to rebound again in July, so it is necessary to pay attention to large-cap stocks, which had weak supply and demand from foreign investors and institutions despite upward earnings revisions within the KOSPI."