"Foreign Investors' 'Sell Korea' Continues... Return Expected Only After Korean Exports and Corporate Earnings Hit Bottom"

There is an analysis suggesting that the return of foreign investors, who have shown the longest 'Sell Korea' trend since the global financial crisis in the domestic stock market, will only occur once exports and corporate earnings hit bottom. It is advised that, for the time being, a focus on domestic demand-oriented stocks would be advantageous.

On April 28, Heo Jaehwan, a researcher at Eugene Investment & Securities, stated, "Since COVID-19, foreign investors have been wary of the decline in domestic exports and the trade balance with China, as well as competition with China."

Heo first pointed out, "President Donald Trump has stopped imposing tariffs, and Federal Reserve Chair Jerome Powell has stopped shaking the markets," but added, "It is unlikely that the prices of all risk assets will recover. This is because the search for new safe assets has not ended," describing the atmosphere in the global financial markets.

Heo also noted that while foreign investors have been net sellers of domestic stocks for nine consecutive months, they have increased their purchases of bonds, saying, "There is a clear preference for safe assets in the domestic financial market as well." He added, "The sectors that foreign investors are net buyers of are few and are defensive in nature."

In April, when concerns over reciprocal tariffs from the United States were high, the sectors in which foreign investors showed a buying preference in the domestic stock market were utilities, telecommunications, and consumer staples. In contrast, sectors such as retail, IT hardware, semiconductors, and IT home appliances continued to see net selling. He commented, "Foreign investors are interested in defensive and domestic demand-oriented sectors."

Heo particularly emphasized that the answer to the inflow of foreign investment lies in exports and corporate performance. He explained, "Except for the COVID-19 period (2020-2022), foreign net buying has consistently increased during phases when domestic exports were on the rise."

He also noted, "Interestingly, the trade balance with China is highly correlated with foreign net buying," and assessed that "foreign investors are influenced by both a rebound in exports and the competitiveness of domestic companies compared to China."

He believes that "foreign investment will only return once domestic exports and corporate earnings have bottomed out." He explained that even if the US dollar weakens, it will be difficult to expect the return of foreign investors until domestic exports and corporate earnings have passed their lowest point. He further suggested a focus on domestic demand, stating, "The bottom in exports has not yet been confirmed, and KOSPI corporate earnings estimates remain high."