[MarketING] KOSPI Falls for Second Day Due to Foreign and Institutional Selling

KOSPI Closes Lower for Two Consecutive Days
KOSDAQ Rebounds After One Day

The KOSPI closed lower for the second consecutive day. The KOSDAQ rebounded after a day of decline. A rebound buying spree in secondary battery stocks, which had dragged down the KOSDAQ the previous day, pushed the index up. Foreign investors' supply and demand also split the fortunes of the KOSPI and KOSDAQ.

KOSPI falls for two consecutive days... slips below 2610

On the 15th, the KOSPI closed at 2608.54, down 10.54 points (0.40%) from the previous day. The KOSDAQ ended the session at 878.04, up 6.21 points (0.71%).

[Image source=Yonhap News]

Foreign and institutional selling led the KOSPI's decline. On that day, institutions sold a net 186.8 billion KRW, and foreign investors sold a net 64.7 billion KRW in the KOSPI market. On the other hand, foreign investors bought a net 16.7 billion KRW in the KOSDAQ market, supporting the KOSDAQ's rise. Institutions also sold 126.2 billion KRW in the KOSDAQ market. Although individuals bought net amounts of 234.2 billion KRW and 138.6 billion KRW respectively, it was insufficient to reverse the KOSPI's direction.

Kim Seok-hwan, a researcher at Mirae Asset Securities, analyzed, "The KOSPI and KOSDAQ diverged depending on foreign investors' supply and demand. The KOSPI fell for two consecutive days as foreign investors engaged in arbitrage trading by selling spot stocks and buying futures, and more than 230 billion KRW was released mainly through non-arbitrage trading, which weighed on the rise." He added, "The KOSDAQ showed a slight net buying advantage by foreign investors, but the rise was limited due to institutional net selling."

Secondary battery stocks, which led the sharp decline in the KOSDAQ the previous day, drove the index's rise as a rebound buying spree emerged due to excessive price drops. Ecopro rose 6.45%, and Ecopro BM increased 1.77%.

Slow recovery of the Chinese economy

Economic indicators released that day from China fell short of expectations, weighing on the stock market.

The National Bureau of Statistics of China announced that industrial production in May increased by 3.5% year-on-year. This was worse than the previous month's figure (5.6%) and also below the expected 3.8%.

Retail sales were also sluggish. May retail sales amounted to 3.7803 trillion yuan (approximately 676 trillion KRW), increasing by only 12.7% year-on-year, falling short of the previous month's 18.4% and the expected 13.7%. Urban fixed asset investment increased by 4.0% year-on-year on a cumulative basis through May, below the cumulative figure through April (4.7%) and the expected 4.4%. The unemployment rate remained steady at 5.2% for the third consecutive month following March and April. Notably, the youth (ages 16-24) unemployment rate reached a record high of 20.8%, surpassing the previous month's 20.4%.

Due to the sluggish economic recovery, Chinese consumer-related stocks showed weakness. Hotel Shilla fell 1.91%, Shinsegae 1.97%, and F&F Holdings 1.63% respectively.

Lim Hye-yoon, a researcher at Hanwha Investment & Securities, analyzed, "The poor physical indicators in China for April and May suggest that the economic recovery in the second quarter will not be easy. Weakened household purchasing power (consumption), sluggish external demand (production), and lack of policy support (investment) are acting as downward pressures on the economy." She added, "For consumption to recover flexibly, purchasing power needs to improve, but signs of this remain weak."

Expectations for stimulus measures are expected to grow amid the slow economic recovery. On the same day, the People's Bank of China cut the policy rate, the Medium-term Lending Facility (MLF) rate, by 0.2 percentage points from 2.75% to 2.65%. Researcher Lim said, "Ahead of next month's Politburo meeting, measures such as easing real estate market regulations and expanding spending to revitalize domestic demand will be considered. If policy responses proceed as expected, concerns about the Chinese economy will peak in the second quarter."