Foreign investors have been selling Korean stocks on a large scale even as the country's stock market extends a record-high rally since the start of the year. However, analysts say this trend reflects "mechanical selling" as investors trim their swollen Korean equity holdings to comply with management rules following a short-term surge, rather than any deterioration in the market's fundamentals.
On Monday, U.S. broadcaster CNBC reported that foreigners have sold billions of dollars worth of stocks this year alone in Korea's record-setting stock market, analyzing that the KOSPI's "excessive gains and success" are instead acting as selling pressure.
Foreign investors net-sold approximately 70 trillion won worth of stocks on the main bourse from the 7th of last month through Monday. Global investment bank Goldman Sachs also estimated that the amount foreigners withdrew from the KOSPI market reached approximately $62 billion (about 85 trillion won) as of the end of May.
Market experts say it is difficult to interpret this foreign selling solely as concern over the Korean economy or corporate earnings. As the stock market surged in a short period, Korea's weighting within global and emerging-market (EM) benchmark indexes grew rapidly, creating a situation that required adjusting the weightings of specific countries and stocks within portfolios.
Chetan Seth, Asia-Pacific equity strategist at Nomura Securities, analyzed that "investors and clients are in a situation where they have no choice but to sell."
In particular, as large-cap technology stocks such as Samsung Electronics and SK hynix surged, foreign investors' holdings of Korean stocks also swelled. Some asset managers have been placed in a structure where they have no choice but to mechanically reduce stocks whose prices have risen in order to meet country or stock holding limits and risk management rules.
Nick Wilcox, a director at global asset manager Man Group, also pointed out that Korea's rapid rise in prominence within emerging-market indexes is acting as a structural burden for foreign investors. Noting that investors are reaching their individual stock holding limits, he explained that "a lot of the selling is investors being forced to sell because they hit buying limits."
Experts assess that the Korean stock market's underlying strength remains solid despite the foreign selling. Strategist Seth said, "I don't get the sense that foreign investors have a negative view on Korea," adding, "I think this is a mechanical move right now."
Goldman Sachs also maintained its optimism on the Korean stock market in a recent report. It raised its 12-month KOSPI target to 12,000, forecasting about 37% of additional upside from current levels.
