Will Foreign Investors Return Again in the Second Half of This Year?

[Asia Economy Reporter Junho Hwang] Will foreign investors make a comeback in the second half of this year? Three factors are cited as variables for foreign investors' return to the domestic market, which influences the direction of the Korean stock market. Accordingly, there is a forecast that the 'Buy Korea' trend could resume in the second half of this year.

According to the Korea Exchange on the 17th, foreign investors have net sold about 12.249 trillion KRW worth of stocks in the KOSPI and about 3.1 trillion KRW in the KOSDAQ from the beginning of this year until the 16th. The stocks most heavily sold in the KOSPI were the perennial blue-chip Samsung Electronics (5.187 trillion KRW) and LG Energy Solution, the second largest by market capitalization (3.03 trillion KRW). As foreign investors continued to sell stocks accounting for more than 23% of the KOSPI market capitalization, the KOSPI index dropped from 2,988.77 at the beginning of the year to 2,596.58.

The reasons foreign investors are avoiding the domestic stock market include the manufacturing-centered industrial structure and poor investment environment. Specifically, concerns include potential foreign exchange losses due to the won-dollar exchange rate surpassing 1,300 KRW, uncertainties from rising production costs caused by increased raw material prices, and direct impacts from supply chain disruptions and logistics difficulties. For the same reasons, foreign investors are withdrawing from emerging markets like Taiwan and Vietnam, while investing in commodity-producing countries such as Brazil and India.

Jiwoo Hwang, a researcher at Shin Young Securities, analyzed, "Although foreign investors are showing strong selling pressure due to concerns about foreign exchange losses, domestic export companies benefit when the exchange rate rises," adding, "There is a possibility that foreign investors' interest will increase again." However, he explained, "Such changes usually begin when the exchange rate starts to decline," and "the buying opportunity can be captured at the starting point of exchange rate stabilization." The won-dollar exchange rate recorded 1,287.92 KRW (closing price) on the 12th and has since fallen to 1,278.00 KRW as of 9:17 AM on the 17th.

Researcher Junghwan Na of Cape Securities stated, "If the Chinese supply chain bottleneck is resolved and the Russia-Ukraine war ends, a stock market rally driven by foreign inflows will unfold," adding, "Currently, due to ongoing uncertainties, a sideways market is likely to continue, so it is reasonable to prepare countermeasures accordingly."