Should investors sell now that a downturn has begun, or buy more on Monday treating this as a healthy correction?
Many investors are likely wrestling with this serious dilemma over the weekend. News that foreign investors have been dumping trillions of won worth of Korean stocks day after day is also fueling investor anxiety. In today's Seoul Economic Daily Sunday Money Cafe, we will examine the causes behind Friday's KOSPI plunge and review the future outlook for the KOSPI as diagnosed by experts.
8,000 KOSPI Broken in 25 Minutes
Retail Investors Net-Buy Another 7 Trillion Won
According to the Korea Exchange on the 17th, the KOSPI opened at 7,951.75 on the 15th and rose to an all-time high of 8,046.78 immediately after opening. Crossing the 8,000 line came just seven trading days after the index first surpassed 7,000 on the 6th of this month.
But the long-awaited "8,000 KOSPI" era lasted only 25 minutes. The index first broke through 8,000 at 9:12 a.m., taking 16 minutes to reach its peak of 8,046.78. It then reversed downward as if by magic, surrendering the 8,000 line at 9:37 a.m., and a sell-side sidecar was triggered at 1:28 p.m. During the session, the index broke below 7,400, falling as low as 7,371.68. The KOSPI ultimately closed down 6.12% at 7,493.18.
The cause of the index's decline is fairly clear: foreign net selling. Once the KOSPI crossed 8,000, foreign investors expanded their selling, and reports then arrived that U.S. President Donald Trump had said he "will no longer tolerate Iran." As U.S. after-hours stock futures turned lower in response, the Korean market extended its losses. Foreign investors net-sold 5.6128 trillion won worth of stocks during regular trading on the 15th alone.
In fact, the Korean stock market's rise after the KOSPI surpassed 7,000 was entirely driven by retail investor buying. While foreign investors net-sold 26.4179 trillion won worth of stocks in the KOSPI market between the 7th and 14th of this month, retail investors net-bought 23.2486 trillion won worth. On the 15th alone, retail investors net-bought a staggering 7.1825 trillion won worth — the largest single-day net purchase in the history of the Korean stock market.
In other words, vulnerability had grown on the supply-demand side due to retail investors' "go-it-alone buying," and complex risks including war, interest rates, and exchange rates stimulated selling sentiment. "Correction pressure had accumulated due to the short-term surge, and price burdens were heavy as well," said Jung Yong-taek, chief research fellow at IBK Investment & Securities. "While foreign investors continued selling for profit-taking and rebalancing purposes from last week, retail investors absorbed the supply. Today, that absorption capacity weakened, which appears to have widened the decline."
Foreign Investors' Intent? "Rebalancing, Not Position Reduction"
So why are foreign investors selling so persistently? To accurately understand the meaning behind foreign net selling figures, one must also look at their ownership ratio of Korean stocks.
As of the 15th, foreign investors accounted for 39.31% of the KOSPI's total market capitalization. This is the highest level in about 20 years since 2006, when it exceeded 40%. Foreign investors have net-sold 92 trillion won worth of stocks since November of last year. Yet their KOSPI ownership ratio increased from 31% to 39% over the same period.
This is because foreign investors hold stocks centered on large-cap semiconductor names. The combined market capitalization of Samsung Electronics and SK hynix accounted for 46.9% of the KOSPI market as of the 15th. So what proportion do Samsung Electronics and SK hynix represent in foreign investors' Korean stock holdings? A whopping 60.2%.
In other words, the center of gravity of their holdings is concentrated in large-cap semiconductors, and since those stocks' share prices have risen significantly, even when foreign investors sell smaller volumes than in the past, the absolute amounts inevitably appear as large net sales.
Brokerages are offering analysis that, since foreign investors' stock ownership ratios are not declining, their recent large-scale net selling is closer to profit-taking and rebalancing demand than active position reduction.
"This round of foreign net selling has a strong character of simple profit-taking following the short-term surge in top market-cap leaders such as semiconductors and automobiles since May," stressed Han Ji-young, analyst at Kiwoom Securities. "It is right to assign low realism to a scenario such as 'record-strong foreign net selling → trend reversal in the stock market → further acceleration of foreign net selling → broad-based capital outflows from the market.'"
Lee Kyoung-min, analyst at Daishin Securities, also analyzed: "It may take time for the KOSPI to break through and settle above the 8,000 level, but upward revisions to earnings forecasts remain valid. With valuation appeal still intact at a forward price-to-earnings ratio (PER) of 8 times or less, I do not judge this to be a reversal into a downtrend." Lee suggested the KOSPI's first support line at the 6,900-7,100 range, which corresponds to a 12-month forward PER of 7.12 times (2026 trough) and the gap-up zone formed in early May.
However, market volatility is expected to remain high for some time. With the KOSPI 200 Volatility Index (VKOSPI) currently moving above the 70 level, daily return swings of more than 4% would not be surprising. In a volatile market, we should all keep in mind that "holding positions" rather than "buy-sell-buy-sell" is the way to protect precious seed money.
