Korean stocks surge 100% but see record foreign sell-off

South Korea's stock market, the Kospi, experienced a historic surge in the first half of 2026, climbing more than 100% and surpassing the 8000-point threshold for the first time. However, this record-breaking performance was accompanied by another unprecedented event: a massive sell-off by foreign investors.

According to data released on July 3rd, foreign investors net sold 148 trillion won (approximately 3.09 trillion New Taiwan dollars) in the Kospi market during the first half of the year. This outflow contrasts sharply with the buying activity of domestic retail and institutional investors, who have been celebrating the stock market's continuous rise.

Market analysts suggest that the foreign sell-off is not driven by a structural avoidance of the South Korean market or a pessimistic outlook on its fundamentals. Instead, several factors are cited, including global asset allocation strategies, profit-taking, concerns about currency losses, and the rapidly growing appeal of the Japanese market.

A significant reason for the foreign selling is the excessive rally in South Korean stocks, which has inflated the weight of these assets in global institutional investors' portfolios beyond prescribed limits. Many global funds adhere to "benchmark guidelines" that cap investment weights for specific assets. When a country's stock prices surge rapidly, causing its weight in a portfolio to exceed the limit, fund managers are compelled to sell shares to rebalance their holdings. This is a common practice in asset allocation, also known as rebalancing.

Further analysis reveals that the foreign selling trend is concentrated specifically in semiconductor stocks, rather than being evenly distributed across Kospi components. This is largely attributed to the dramatic price increases of SK Hynix and Samsung Electronics, driven by strong demand for AI and next-generation High Bandwidth Memory (HBM). Some hedge funds have been among the first to take profits. As domestic investors eagerly bought into the market, foreign investors strategically exited, capitalizing on the ample liquidity. Concerns over the weakening won against the U.S. dollar, which recently fell below the crucial 1550 level, have also contributed to foreign investors' apprehension about currency losses.