Foreigners Sold $71 Billion of Korean Stocks, but Ownership Rose as Rally Lifted Holdings

Foreign investors sold about $36 billion of Samsung Electronics, but the value of their holdings jumped by about $218 billion

Brokerages say the selling was likely mechanical rebalancing after a sharp rally

Rising bond yields are seen as the bigger threat and could slow AI infrastructure spending

Foreign investors have sold more than 100 trillion won ($72.5 billion) of shares on South Korea’s benchmark stock market this year. Even so, their ownership ratio has risen from the end of last year because the value of the stocks they kept increased even faster as share prices surged.

Brokerages say the selling may reflect mechanical portfolio rebalancing after a steep rally in Korean equities, rather than a negative view on the market.

Analysts say the bigger risk to the rally is the recent jump in interest rates, which could derail the market’s upward trend.

According to the Korea Exchange, foreign investors accounted for 39.2% of Kospi market capitalization as of the close on May 15, up 2.94 percentage points from 36.26% at the end of last year.

Over the same period, foreigners were net sellers of 98.2168 trillion won ($71.2 billion) on the Kospi.

Their ownership share still rose because stock prices climbed sharply. The value of the shares they continued to hold increased by more than the value of the shares they sold.

Foreign investors were net sellers of 49.6927 trillion won ($36 billion) of Samsung Electronics common stock this year, reducing their stake to 48.69% from 52.33%. Even so, the market value of their Samsung holdings rose 107.31% to 769.9471 trillion won ($557.9 billion) on May 15, from 371.3921 trillion won ($269.1 billion) at the end of last year. The stock climbed 125.6% to 270,500 won from 119,900 won.

They also sold 35.0446 trillion won ($25.4 billion) of SK Hynix over the same period, cutting their stake to 52.14% from 58.83%. But the market value of their holdings increased 164.98% to 675.9930 trillion won ($489.9 billion) from 255.1124 trillion won ($184.9 billion). The stock rose 179.42% to 1.819 million won from 651,000 won.

Total Kospi market capitalization expanded by 2,657.5888 trillion won ($1.93 trillion) to 6,134.9793 trillion won ($4.45 trillion) on May 15, from 3,477.3905 trillion won ($2.52 trillion) at the end of last year. Foreign-held market value rose faster than the Kospi’s overall 76.42% increase in market capitalization, pushing up foreign ownership as a result.

Kim Jae-seung, an analyst at Hyundai Motor Securities, said foreign net selling in the Kospi looks like mechanical rebalancing from an asset-allocation perspective. South Korea’s National Pension Service had already exceeded its domestic-equity target by about 10 percentage points as of the end of February, versus a 14.9% target for this year, he said.

As Kospi stocks rallied sharply, Korean equities took up too large a share of global investors’ portfolios. That left investors needing to trim positions and lock in profits to bring allocations back down.

For that reason, sales of Korean stocks as part of portfolio rebalancing should not be read as a bearish signal on the market, Kim said. He cited continued inflows through April into the iShares MSCI Korea ETF, ticker EWY, which is listed in the US.

Outflows have emerged from EWY since May. But money has instead flowed rapidly into the Roundhill MEME ETF, ticker DRAM, where Samsung Electronics and SK Hynix account for more than half of the portfolio, Kim said. US ETF flows suggest foreign investors are still betting on the durability of the memory-chip boom that has powered the Kospi higher.

That boom in memory semiconductors has been driven by hyperscalers racing to expand artificial intelligence infrastructure. Companies are engaged in a spending battle because falling behind could threaten their survival.

This year, big tech companies have also begun issuing corporate bonds to fund AI infrastructure investment. The scale of spending has grown beyond what they can comfortably finance from existing business cash flow.

As big tech companies take on more debt, analysts are urging investors to watch rising interest rates closely. Higher yields could slow AI infrastructure investment and also weigh on stock valuations directly.

Concerns intensified after key psychological thresholds in US Treasury yields were breached late last week, with the 10-year yield rising above 4.5% and the 30-year yield topping 5%. International oil prices surged after US President Donald Trump again considered military action against Iran, stoking inflation concerns and sending yields higher.

Lee Eun-taek, an analyst at KB Securities, said rising rates are not something investors can afford to dismiss lightly, especially in a period of high inflation and bubble-like stock-market conditions. Over the past 120 years, all three major stock-market bubble collapses were triggered by rising interest rates, he said.

Still, Lee said the current rise in yields is unlikely to trigger an outright market collapse. The main driver is anxiety over oil prices, he said. If crude rises above the critical threshold of $120 a barrel and the stock market reacts violently, Trump may once again choose “TACO,” short for “Trump Always Chickens Out.” In that case, the worst stretch could instead create a buying opportunity, he added.

Kim Byung-yeon, an analyst at NH Investment & Securities, also suggested yield levels that could become a meaningful burden for equities: above 5.179% for the 30-year US Treasury and above 4.8% for the 10-year note.

Han Kyung-woo, Hankyung.com reporter case@hankyung.com