[MarketING] Foreigners Turning Away Amid Weakened Risk Appetite

KOSPI Closed Lower but Holds the 2400 Level
Foreigners Turned Net Sellers for the First Time in 8 Weeks on a Weekly Basis
Need to Watch for Foreigners' Profit-Taking Sales in the Near Term

[Image source=Yonhap News]

The KOSPI has fallen for two consecutive trading days, putting the 2400 level at risk. Due to inflation concerns originating from the U.S. and fears of prolonged tightening, foreign investors' risk appetite has weakened, significantly dampening buying momentum in the domestic stock market. It is expected that foreign investors will continue to sell for profit-taking in the near term, prompting calls for caution.

KOSPI Falls for Two Consecutive Days Amid Selling by Foreigners and Institutions

On the 27th, the KOSPI closed at 2402.64, down 20.97 points (0.87%) from the previous session. The KOSDAQ ended the day at 780.30, up 1.42 points (0.18%).

The KOSPI started the day down more than 1%, briefly breaking below the 2400 level early in the session, but narrowed losses to close just above 2400. The KOSDAQ, which started weak, turned positive.

Foreign and institutional selling led the index decline. On that day, foreigners and institutions sold 324.8 billion KRW and 419.9 billion KRW respectively in the KOSPI market, driving the index down. Foreigners have maintained selling pressure exceeding 300 billion KRW for two consecutive trading days.

Seokhwan Kim, a researcher at Mirae Asset Securities, explained, "The U.S. stock market was pressured by a higher-than-expected January Personal Consumption Expenditures (PCE) index, rising Treasury yields, and falling tech stocks, which weighed on the domestic market. Additionally, the won-dollar exchange rate surged sharply during the session, expanding foreign selling." On that day, the won-dollar exchange rate closed at 1323 KRW, up 18.2 KRW from the previous trading day in the Seoul foreign exchange market.

The foreign buying that led the market rebound in January is weakening. On a weekly basis, foreigners turned to net selling in the KOSPI market for the first time in eight weeks.

Daejun Kim, a researcher at Korea Investment & Securities, said, "With foreigners switching to net selling after eight weeks of net buying that had driven the Korean market's upward trend, caution is likely to increase in the market. Given that foreign net selling and increased index volatility occurred simultaneously at the end of last year, such concerns are not unusual." He added, "Due to the inflation data released in the U.S. last week, risk asset appetite likely weakened, so foreigners may continue selling across Asian markets, including Korea, this week."

Considering recent foreign trading patterns, it is expected that foreign profit-taking sales will continue for about a month. Kyungmin Lee, a researcher at Daishin Securities, said, "Since July last year, foreigners have net bought over 17 trillion KRW, showing a distinctive trading pattern of two months of heavy net buying followed by one month of partial profit-taking. With the dollar and bond yields rebounding and the won-dollar exchange rate expected to attempt a rebound from the 1320 level to around 1360-1370 KRW, it is unlikely that foreign selling will subside quickly. Caution is needed for foreign profit-taking sales for about a month."

It Is Premature to Conclude Foreigners Have Switched to Net Selling

Although foreign buying has weakened recently, concerns about a switch to net selling are considered premature.

Daeseok Kang, a researcher at Yuanta Securities, said, "Although foreigners switched to net selling after eight weeks, monthly cumulative data still shows a net buying advantage. While the won-dollar exchange rate has risen again, causing foreign net buying to slow, it is rare for the U.S. dollar to appreciate in an environment where the U.S. short- and long-term interest rate spread is narrowing."

The outlook for sustained dollar strength is low. Kang explained, "Considering the leading tendency of the interest rate spread relative to the dollar, a sustained trend of dollar appreciation is unlikely. Therefore, concerns about foreigners switching back to net selling are premature."

Researcher Daejun Kim added, "Recently, the KOSPI has been undergoing a period of adjustment, somewhat cooling an overheated atmosphere. Although the U.S. inflation data released last week could lead to further declines, from a longer-term perspective, the current downturn is an inevitable process for further gains."