KOSPI Large Caps End Lower Despite Strong Earnings
Burden of Nine Consecutive Months of Foreign Net Selling
Sideline Funds Flee to Parking-Type Products Like RPs
According to the Korea Exchange on April 25, the KOSPI closed at 2,522.33 the previous day, down 0.13%. Seven out of the top ten companies by market capitalization ended lower, giving back some of the gains from the day before. This contrasts with the New York stock market, where major tech stocks rallied for two consecutive days. Notably, SK Hynix posted a record-high preliminary operating profit of over 7 trillion won for the first quarter, yet its share price fell by 1.49%. Hyundai Motor also set a new quarterly sales record for the first quarter of this year, but its stock could not avoid a decline.
The main reason cited for the KOSPI’s failure to join the relief rally is the continued "Sell Korea" trend among foreign investors. Since the beginning of this month through the previous day, foreigners have sold about 10.5 trillion won worth of KOSPI shares, marking a ninth consecutive month of net selling since August last year. This is the second-longest streak on record, following the 11 consecutive months of net selling from June 2007 to April 2008.
Cho Changmin, a researcher at Hyundai Motor Securities, commented, "Currently, the proportion of foreign investors in the domestic stock market is 35.7%, the highest on a monthly basis since 2000. However, when the trend is toward net selling, the average market return is at its lowest," adding, "The momentum for further gains in the market is likely to weaken under current conditions."
Short-selling, which is concentrated in large-cap stocks, is also putting pressure on the market. As of April 23, the top three stocks in terms of outstanding stock lending balances?a leading indicator for short-selling in the main board?were Samsung Electronics (6.149 trillion won), SK Hynix (4.83 trillion won), and LG Energy Solution (3.158 trillion won), which are the top three companies by market capitalization on the KOSPI. The outstanding balance of margin trading for stock lending, which reflects individual investors’ participation in short-selling, stood at 30.9 billion won as of April 22, the highest level this year. This is 16 times higher than on March 31, when short-selling was fully resumed.
There is also analysis that funds are moving into "parking-type" products ahead of Korea-US tariff negotiations, holding back a stock rally. In fact, as of the end of last year, the outstanding balance of customer repurchase agreements (RPs) was in the 83 trillion won range, but as of April 22, it had surpassed 95 trillion won?the largest amount since July 7, 2021. RPs are representative parking-type financial products sold mainly by securities firms to individuals and corporations under the condition of repurchasing after a set period. Most have maturities of three months (91 days) or less and are classified as short-term investment funds.
Researcher Cho added, "There is about 14 trillion won in additional net selling left before the foreign ownership ratio of KOSPI drops to the psychological support level of 30%. If foreigners complete their intensive net selling and start buying again, we can expect preemptive net buying in sectors where foreign ownership has significantly decreased."
Lee Jaewon, a researcher at Shinhan Investment Corp., emphasized, "We need to pay attention to whether foreign funds, which have been continuously exiting due to tariff concerns, will return. If favorable results are achieved in the Korea-US tariff negotiations, we expect a rebound in stocks that have suffered excessive declines and in sectors where foreign ownership has dropped."
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