[Return of Foreigners] ① 6.8 Trillion in One Month... Record-Breaking Net Buying

Improved Emerging Market Stock Sentiment Due to Dollar Weakness
KOSPI's Low Price Attractiveness Highlighted... Focused Buying of Semiconductor Stocks

[Asia Economy Reporter Lee Seon-ae] Foreign investors, who had turned their backs on the Korean stock market over the past three years, have made a spectacular return. Since the beginning of the new year until the 30th, they have shown an aggressive net buying trend by purchasing nearly 7 trillion won worth of shares on the KOSPI. They bought back all the shares they had sold throughout last year within just one month. It is truly an unprecedented level of net buying. They also set the highest monthly net purchase record in about 10 years. However, in the securities industry, there is a considerable amount of cautious opinion alongside the optimistic view that foreign investors' net buying will continue. This is based on the judgment that their movements do not represent a trend signal, as foreign investors could at any time shout "Bye Korea" and withdraw from the domestic stock market.

According to the Korea Exchange, foreign investors have purchased 6.8455 trillion won worth of shares on the KOSPI from the beginning of this year until the 30th. This means they have bought back the 6.8065 trillion won worth of shares they sold last year in just over a month. During this period, institutions sold 265.7 billion won worth of shares, and individual investors sold 6.539 trillion won worth. In other words, foreign investors absorbed all the shares poured out by individual investors.

Foreign investors continued net buying on every trading day except for January 10, when they recorded a net sale of about 2.2 billion won. The 12 consecutive trading days of net buying by foreign investors from January 10 to 30 is the longest period since the 13 consecutive trading days from September 29 to October 19 last year. Additionally, the net purchase amount in January is the highest monthly figure in about 10 years since September 2013 (7.6361 trillion won).

As a result, the proportion of foreign ownership in the KOSPI market capitalization has also increased. The foreign ownership ratio, which had fallen to 30.38% last September, rose to 31.89% as of the 27th. This is the highest level since March 23 last year (31.87%).

The foreign ownership ratio relative to the KOSPI market capitalization reached about 38% at the end of 2019 but began to decline as the COVID-19 pandemic broke out and foreign investors started leaving the Korean market. By the end of 2020, it had dropped to the mid-30% range, and in 2021, it plunged to the low 30% range. Especially last year, it nearly broke below the 30% threshold. At the end of 2022, it barely held at 30.7%. Although net purchases in 2019 amounted to 950.4 billion won, foreign investors sold off 24.5651 trillion won worth of shares in 2020. In 2021 and 2022, they also sold 25.6011 trillion won and 6.8065 trillion won respectively, leading to a decrease in their ownership ratio.

What is behind the return of foreign investors? Experts agree that the weakening of the won-dollar exchange rate has played a significant role. The won-dollar exchange rate, which had exceeded 1,400 won, has dropped to the low 1,200 won range. As the value of emerging market currencies rises against the US dollar, investment sentiment toward Asian emerging markets is rapidly improving. Park Hee-chan, a researcher at Mirae Asset Securities, diagnosed, "Global investors' interest in Asian emerging markets is increasing, creating an inflow effect into Korea through passive funds." Oh Chang-seop, a researcher at Hyundai Motor Securities, also explained, "At the beginning of the year, the US dollar weakened in the international foreign exchange market, showing signs of relative strength in emerging market currencies compared to developed countries," adding, "Global investment funds are flowing into emerging market stocks."

In particular, the fact that the Korean stock market experienced a larger decline than other major countries last year, creating a bargain-buying appeal, is also cited as a reason for foreign investors' "Buy Korea" stance. The KOSPI fell about 25% last year, ranking 25th out of 27 countries including the G20 and Asian countries. Lee Young-hoon, a researcher at Samsung Securities, analyzed, "With expectations that central banks' interest rate hikes are concluding and increased preference for non-US assets due to the weakening dollar, foreign investors are concentrating their purchases on Korean stocks." Jeong Yong-taek, senior researcher at IBK Investment & Securities, analyzed, "Along with undervaluation appeal, foreign investors' capital inflow into Korea, a market sensitive to economic cycles and representative among emerging markets, has increased."

Nearly half of the close to 7 trillion won net purchases by foreign investors in January were concentrated in semiconductor stocks. Among the top foreign net purchase stocks were semiconductor companies Samsung Electronics (2.5372 trillion won) and SK Hynix (621.2 billion won), ranking first and second respectively. This is interpreted as reflecting the expectation that stock prices will rise as the effects of global memory companies' investment cuts and production reductions become visible from the second half of the year. Seo Sang-young, head of the Media Content Division at Mirae Asset, said, "There is a forecast that DRAM prices will recover from the second half as semiconductor inventories are depleted in the first half," interpreting, "Semiconductors are a representative cyclical industry, so foreign investors want to buy when prices are at the bottom." Foreign investors also purchased financial stocks such as Shinhan Financial Group (264.3 billion won), Hana Financial Group (220 billion won), and KB Financial Group (145.5 billion won), reflecting expectations for enhanced shareholder returns. Hyundai Motor (235.5 billion won) and Kia (143.5 billion won) also ranked among the top net purchase stocks. Despite the economic downturn, the expectation of record quarterly earnings appears to have driven foreign investors' buying momentum.