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🇰🇷 South Korea /Economy & Trade

Foreign investors' record sell-off shakes South Korean market

From Hankyoreh · () Korean

Translated from Korean, summarized and contextualized by DistantNews.

At a glance

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  • Foreign investors sold a record 48.62 trillion won ($35 billion) worth of South Korean stocks in July, marking the largest monthly net selling in history.
  • This significant outflow is attributed to portfolio rebalancing by foreign institutions following a sharp rise in the KOSPI index.
  • The selling pressure, particularly on semiconductor giants like Samsung Electronics and SK Hynix, has contributed to extreme volatility in the South Korean stock market.

South Korea's stock market is experiencing unprecedented volatility as foreign investors engage in record-breaking sell-offs. In July alone, foreign net selling reached a historic 48.62 trillion won ($35 billion), with a single-day sale of 7.73 trillion won on July 29, shattering previous records. This aggressive divestment has pushed the cumulative net selling for the first half of the year to 149.04 trillion won, another all-time high.

Analysts attribute this massive outflow to portfolio rebalancing by foreign institutional investors. As the KOSPI index surged, these investors adjusted their holdings to align with their target portfolio weights. "Rebalancing is less about a deteriorating market outlook and more about mechanically reducing assets that have risen significantly to return them to their predetermined proportions," explained Lee Eun-taek, a researcher at KB Securities.

Rebalancing is less about a deteriorating market outlook and more about mechanically reducing assets that have risen significantly to return them to their predetermined proportions.

— Lee Eun-taekResearcher at KB Securities explaining the reasons behind foreign investors' selling activity.

The consequence of this foreign selling spree is a weakening of major semiconductor stocks, the backbone of the KOSPI. Samsung Electronics and SK Hynix have seen net sales of 20.77 trillion won and 19.71 trillion won, respectively, in July. This has led to extreme market fluctuations, with the KOSPI experiencing its first-ever '9000-point' milestone alongside two activations of the circuit breaker, a mechanism triggered by an 8% index drop.

While some analysts predict that the pressure from rebalancing may ease in the second half of the year, concerns remain about individual investors absorbing the brunt of the foreign sell-off. Retail investors have net-purchased 42.39 trillion won in July and nearly 99.17 trillion won this year. The use of margin trading, or borrowing money to invest in stocks, has also reached record highs, reaching 29.42 trillion won in July, raising further concerns about market stability.

The supply and demand volatility of semiconductor stocks due to quarterly and semi-annual rebalancing is limiting the upside of the stock market.

— Han Ji-youngResearcher at Kiwoom Securities analyzing the impact of foreign selling on the market.
DistantNews Editorial

Originally published by Hankyoreh in Korean. Translated, summarized, and contextualized by our editorial team with added local perspective. Read our editorial standards.

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