[MarketING] Foreigners Net Bought 6 Trillion Won So Far This Year

KOSPI Early-Year Rally Led by Foreigners
High Dependence Makes Increasing Holdings Burdensome

[Image source=Yonhap News]

[Asia Economy Reporter Song Hwajeong] Foreign investors have been driving the stock market rally since the beginning of this month by purchasing nearly 6 trillion won. However, since the rally is continuing solely based on foreign investors, it is a burdensome situation for other investors to increase their stock holdings.

Index Rise Led by Foreign Investors' Solo Buying

As of 10:20 AM on the 27th, the KOSPI recorded 2,480.85, up 12.20 points (0.49%) from the previous day. The KOSDAQ rose 1.06 points (0.14%) to 740.00. On this day, the KOSPI fluctuated around the flat line, turning weak in the early session, but the buying momentum from foreign investors expanded, increasing the gains.

Kim Jihyun, a researcher at Kiwoom Securities, said, "Thanks to the strong net buying by foreign investors who poured in more than 700 billion won the previous day, the KOSPI closed higher for four consecutive trading days," adding, "Today as well, the KOSPI is expected to show a positive trend supported by foreign capital inflows, which have been net buying for 10 consecutive trading days."

Foreign investors are leading the KOSPI rise with solo net buying. On this day, foreign investors were net buyers of 258.3 billion won in the securities market. Since the beginning of this year until the previous day, foreign investors have net purchased 5.8561 trillion won. Considering that they net sold 6.8066 trillion won throughout last year, they are now launching a strong buying offensive. During the same period, individuals sold 5.8161 trillion won, and institutions net sold 76.8 billion won. The KOSPI has risen 10.38% since the start of the year.

Han Jaehyuk, a researcher at Hana Investment & Securities, explained, "The biggest contributor to the current index rise is foreign investor demand," adding, "The inflow of foreign capital is judged to be driven by demand for currency arbitrage and the reflective benefits of China's reopening." Despite recent declines, the still-high dollar index and the expected 0.25% interest rate hike at next week's U.S. Federal Open Market Committee (FOMC) meeting are moving the environment in a direction favorable to dollar weakness rather than strength. The won-dollar exchange rate has dropped from the 1,260 won level at the end of last year to the 1,230 won level currently. The researcher added, "The previously cited risk factor of a high export ratio to China is instead acting as a merit that can benefit from China's normalization."

Rally Dependent Only on Foreign Investors... Increasing Holdings is Burdensome

Thanks to foreign investors, the index has maintained strength since the start of the year, but on the other hand, this is also a burden. If foreign investors change their minds after the rise dependent solely on them, volatility is bound to increase.

The researcher pointed out, "The stock market rally in an unfavorable environment is purely thanks to the continuous net buying by foreign investors," adding, "Therefore, if foreign capital inflows shrink, the Korean stock market is likely to start reflecting the negative factors that have been hidden so far."

There is an opinion that short-term trading approaches are more effective than increasing holdings. The researcher said, "Given the overly high dependence on a single supply entity, foreign investors, it is cautious to increase weightings in the KOSPI," adding, "When investor sentiment is not bad, short-term trading approaches will be effective."

Woo Jiyeon, a researcher at IBK Investment & Securities, explained, "There are concerns about supply and demand regarding the rapidly expanding foreign buying since the beginning of the year," adding, "Compared to semiconductors, banks, and automobiles, foreign buying has been relatively low this year, and additional gains can be expected mainly in sectors such as machinery and capital goods, where earnings improvement expectations are highlighted."