Foreign investors return to net selling in South Korean stocks

South Korean stock markets experienced volatility as foreign investors reversed their recent net buying trend, returning to net selling on July 10 after a brief period of increased activity.

The KOSPI index initially surged, reaching intraday highs and triggering a "sidecar" trading curb designed to stabilize the market. Despite opening 3.57% higher and climbing as much as 5% during the day, the index ultimately closed up 2.52%, failing to surpass the 7500 mark. This retreat followed a period where foreign investors, who had sold off 41 trillion won worth of stocks after the KOSPI hit 9000 points on May 18, had shifted to net buying, purchasing 500 billion won over two days (July 8-9).

Analysts suggest that the recent sharp decline in the KOSPI created price advantages, leading to a temporary easing of selling pressure from foreign investors. However, the market faces ongoing supply uncertainty, particularly concerning semiconductor stocks, which remain a focus of foreign selling. A sustained rebound would likely require improved investor sentiment towards the AI and semiconductor industries or significant inflows of domestic capital.

Foreign investors showed mixed behavior within the semiconductor sector on July 10. They were net buyers of Samsung Electronics and Samsung Electro-Mechanics, potentially influenced by positive news from the U.S. market regarding AI and tech investments. Conversely, SK Hynix saw substantial net selling, possibly due to caution ahead of its U.S. depositary receipt listing. While Samsung Electronics closed higher, SK Hynix experienced a slight decline.

The market's volatility has also led to frequent activations of trading curbs. The KOSPI market saw its third sidecar activation this week and fifth this month, surpassing the total from the 2008 global financial crisis. The KOSDAQ index also experienced significant gains and triggered a sidecar, with its total sidecar activations this year matching the 2008 figure.

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The selling pressure from foreign investors has eased since the end of last month as the KOSPI has seen a short-term sharp decline, creating price merit. However, we are facing supply uncertainty with continued selling pressure centered on semiconductors, so we need factors that improve investment sentiment in AI and semiconductors or active domestic capital inflows for a meaningful rebound trend.