Foreign Investors Take Profits as Retail Traders Reel, Dumping W93 Trillion of Kospi Stocks Before Slide

Foreign share of market cap falls to 38.65%, lowest in five months

Foreigners were net sellers of W93 trillion on the Kospi in May and June

"Korean stocks offer little reason to park money"

Foreign investors' share of South Korea's stock-market capitalization has fallen to its lowest level in five months. Foreign ownership had climbed to a 21-year high during a semiconductor-led rally, but overseas investors sold more than W93 trillion of local shares over two months. With the Kospi extending its slide to seven straight sessions, brokerages say foreign investors are pulling money from the market as doubts deepen over shareholder returns in Korea.

EpicAI, an artificial intelligence-based investment information platform, said foreign investors accounted for 38.65% of total market capitalization on the benchmark KOSPI market as of Oct. 13. That was the lowest since May 4, when the figure stood at 38.25%.

Foreign ownership stood at 41.56% of the domestic stock market's total capitalization on June 25, when the Kospi approached the 9,000 mark and closed at 8,930.30. That was the highest since Sept. 23, 2005, when the figure was 41.61%. A sharp rally in major semiconductor shares including Samsung Electronics and SK Hynix had pushed the market value of foreign-held stocks to a historically rare level.

From that point, analysts say foreign investors judged the Kospi had peaked and continued large-scale net selling. In May, foreigners were net sellers of W44.7147 trillion on the main board. In June, they sold another W48.6248 trillion. That means they dumped more than W93 trillion of local stocks in just two months. Their share of market capitalization stayed elevated because gains in share prices lifted the value of existing holdings, but broad profit-taking was already under way.

Foreigners kept selling Korean stocks after that. From June 25 through the previous day, the foreign share of market capitalization on the benchmark market fell 2.91 percentage points over roughly three and a half months. That is why some analysts say a "Kospi exodus" has emerged among foreign investors after their share of the market had once climbed well above 40%.

The market value of stocks held by foreign investors has also shrunk sharply. As of the previous day, the value of foreign-held shares stood at W1,924.7517 trillion, down W1,113.8954 trillion from W3,038.6471 trillion on June 25. In just over three months, more than W1,100 trillion in paper value has evaporated from foreign investors' Korean stock holdings. The decline in foreign ownership is also clear at the individual stock level. Samsung Electronics, the market's biggest stock, has seen foreign ownership slip into the 46% range. That is the lowest since 2008.

The foreign selloff has also left the Kospi struggling to find a foothold for a rebound. The index closed at 5,554.22, down 454.59 points, or 7.57%, from the previous session. Both the point drop and the percentage decline were the largest since July 28, when it fell 732.09 points, or 10.84%. From Oct. 6 through the session, the Kospi fell for seven straight trading days. Over that stretch, it plunged 1,449.52 points, or 21%.

Brokerages say a sustained rebound in Korean equities will be difficult unless foreign selling eases. Yang Hyun-kyung, an analyst at iM Securities, said net foreign selling narrowed from the previous day, but market flows have not improved enough to sustain a rebound. From a technical standpoint, the Kospi's renewed break below 6,000 also makes it too early to conclude support has been secured.

Hwang Su-wook, an analyst at Meritz Securities, said semiconductor fundamentals still look solid, but stock prices are being driven more by sentiment and market flows than by fundamentals. With retail and institutional flows still failing to establish direction, investors can afford to wait and see whether foreign money returns on a sustained basis before making a call.

One brokerage executive said that from a foreign investor's perspective, Korea remains a market to exit quickly once market flows break down after a sharp rally, no matter how strong semiconductor earnings are. For global capital, the Kospi offers little reason to keep money parked there if trust in shareholder returns and corporate governance remains weak and market volatility rises.

Kang Kyung-ju, Hankyung.com reporter memory@hankyung.com