Sell US, buy Korea: Korean retail investors pivot amid US market concerns

Traders work on the floor of the New York Stock Exchange, Friday. AFP-Yonhap

Even during the sharp declines in the U.S. stock market this February and March — triggered by President Donald Trump's tariff policies — Korean retail investors remained loyal to the market, making substantial net purchases.

However, that trend has reversed.

Starting this month, Korean investors have begun selling off their U.S. holdings. With persistent concerns over the U.S. economy and rising expectations of a rate cut by the Bank of Korea, investor attention is now shifting back to domestic stocks.

According to the Korea Securities Depository Tuesday, retail investors recorded net sales of U.S. stocks worth $1.19 billion so far this month. This marks their first net selling of U.S. equities in seven months.

In the fourth week of May alone, Korean investors sold a net $205.85 million in U.S. stocks. In contrast, during the same period, they made net purchases of 807.2 billion ($588 million) won in the benchmark KOSPI index. The top three domestic stocks purchased were Samsung Electronics, Hyundai Motor and Hanwha Solutions.

Concerns over the U.S. economy have deepened after Moody’s Ratings downgraded the country’s credit rating for the first time in 108 years.

Adding to the uncertainty, the House passage of Trump’s sweeping tax cut bill and his proposal to impose a 50 percent tariff on the European Union have reignited fears of a renewed trade war.

"While the financial markets have been able to rule out the worst-case tariff scenario, uncertainty still lingers over future tariff negotiations, the economic outlook and the direction of the U.S. dollar," said Kim Sung-hwan, a global equity strategist at Shinhan Securities. "A neutral stance is being recommended as the strategic approach for the U.S. stock market in June."

Meanwhile, the Korean stock market is facing more favorable conditions. An increasing number of analysts are forecasting that the KOSPI could reach the 3,000 mark in the second half of the year, as political uncertainties are resolved and liquidity improves.

There is growing anticipation that the appreciating won could prompt foreign investors to return to Korean equities. The won-dollar exchange rate dropped to the 1,360-won range last week, hitting its lowest point in seven months.

In a bid to support economic growth, the Bank of Korea is widely expected to lower its benchmark interest rate by 0.25 percentage points at its upcoming monetary policy meeting Thursday.

Further bolstering investor optimism, the incoming administration from the June 3 presidential election is expected to introduce a large-scale supplementary budget aimed at stimulating the economy. Analysts say the move could inject significant liquidity into the stock market.

"The shift to net buying by foreign investors is expected to serve as a tailwind for the domestic stock market," said Hanwha Investment & Securities analyst Kim Soo-yeon. "In June, as liquidity increases, the Korean stock market is likely to see growing divergence between sectors and individual stocks."