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Have foreign investors really returned to KOSPI?
The KOSPI index and the dollar-won exchange rate are displayed on the status board of Hana Bank’s dealing room in Seoul, Thursday. The KOSPI closed at 2,812.05, up 41.21 points or 1.49 percent from the previous trading session, while the exchange rate fell to the mid-1,300 won range, closing at 1,358.4 won. Yonhap
By Jun Ji-hye
Easing of political uncertainty, won’s strength improve buying sentiment
Foreign investors, who had previously dumped Korean stocks amid domestic and global uncertainties, have begun returning to the KOSPI following the resolution of political turmoil triggered by former President Yoon Suk Yeol’s short-lived declaration of martial law and subsequent impeachment, according to market analysts on Friday.
They also said the easing of tariff shocks from U.S. President Donald Trump helped boost buying sentiment among investors.
According to the Korea Exchange, foreign investors purchased a net total of 3.27 trillion won ($2.6 billion) in Korea’s main bourse from May 1 through June 5.
The recent turnaround marks a stark contrast, considering that foreign investors offloaded 18.2 trillion won worth of Korean stocks between Dec. 10 of last year — when Yoon’s martial law declaration and the impeachment turmoil first impacted markets — and April of this year, when risks stemming from Trump’s aggressive tariff policies intensified.
In particular, foreign investors offloaded more than 8 trillion won in Korean equities between April 1 and 9 amid heightened tariff concerns, exacerbating the sharp decline in the stock market.
Their return as net buyers came after the U.S. postponed its tariff measures and Korea’s political uncertainties eased following the presidential election on Tuesday.
Analysts noted that the shift reflects reduced market uncertainty and rising expectations for a revitalized capital market.
On Wednesday, the day after the presidential election, foreign investors recorded their largest net purchase of the year, buying 1.05 trillion won in local stocks. They continued their buying spree the following day, adding another 916 billion won.
Fueled by strong foreign buying, the KOSPI closed at 2,812.05 Thursday, breaking the 2,800 mark for the first time in nearly 11 months. The index has surged 22.6 percent from its April low of 2,293.70.
During the week of the presidential election — from May 29 to June 5 — the Korean stock market ranked among the top performers globally, with the KOSPI jumping 3.36 percent, marking the highest return among 41 major indices across 32 countries.
In addition, the won-dollar exchange rate, which had been trading above the mid-1,400 level, fell to the mid-1,300 range, easing market concerns. It closed at 1,358.4 won on Thursday.
Increased optimism over a stronger won has also improved foreign investor inflows.
SK hynix headquarters compound in Icheon, Gyeonggi Province, July 25, 2024 / Newsis
Since returning to the market, foreign investors have shown the strongest interest in SK hynix, purchasing shares worth 2.2 trillion won since last month. This buying momentum was driven by investor expectations of growing demand for high bandwidth memory (HBM) technology.
Foreign investors also acquired 634 billion won in Doosan Enerbility, a leading company in the nuclear power sector, and 397 billion won in transformer maker Hyosung Heavy Industries.
The key question remains whether foreign investors' net buying trend can be sustained.
Analysts said investment inflows are expected to persist for the time being, with domestic political uncertainties easing and the pace of Commercial Act revision picking up. Nevertheless, U.S. tariff policies and ongoing global geopolitical tensions continue to pose risks.
"Foreign investor demand has strengthened due to expectations of fiscal stimulus alongside interest rate cuts and factors favoring the won's appreciation," Lee Kyung-min, an analyst at Daishin Securities, noted. "Since the exchange rate could decline further, the trend of net buying by foreign investors is expected to continue."