Foreigners Betting on the Bull Market... Comeback Signal?

Switch to Buying Momentum After a Month and a Half
Last Week Net Buying of 246.1 Billion KRW
Buying Leverage ETFs and Net Selling Inverse ETFs

[Asia Economy Reporter Song Hwajeong] Foreign investors have shown buying momentum in the domestic stock market for the first time in a while, raising expectations for their return. In particular, foreign investors purchased leveraged exchange-traded funds (ETFs) while net selling inverse ETFs, indicating a bet on further index gains.

According to the Korea Exchange on the 19th, foreign investors net purchased about 246.1 billion KRW in the domestic stock market last week. They bought 36.4 billion KRW in the KOSPI market and 209.9 billion KRW in the KOSDAQ market. This is the first time in six weeks on a weekly basis that foreign investors have shown buying momentum in the domestic stock market, and the first time in five weeks that they have net bought in the KOSPI.

Since foreign investors showed buying momentum for the first time in a while and purchased more than 200 billion KRW in the KOSDAQ last week, leading to a new high, there is interest in whether the same movement will appear in the KOSPI. If foreign investors expand their buying in the KOSPI, it is expected that the KOSPI could also reach new highs. Especially, the KOSPI has shown synchronization with foreign investors’ buying behavior, making foreign buying momentum crucial for the KOSPI to break new highs. Since the beginning of this month, on days when foreign investors net bought in the KOSPI, the index rose, and on days when they sold, it fell. On the 6th, when the KOSPI reached an all-time high of 3305.21, foreign investors net purchased 223.7 billion KRW.

Looking at the recent purchase of leveraged ETFs and sale of inverse ETFs by foreign investors, it is interpreted that they are betting on further upward momentum in the KOSPI. Last week, foreign investors bought 26.1 billion KRW of KODEX Leverage while net selling 46.4 billion KRW of KODEX 200 Futures Inverse 2X. Inverse ETFs are designed to generate profits when the underlying asset declines, whereas leveraged ETFs are designed to generate twice the profit when the underlying asset rises. The fact that foreign investors bought leveraged ETFs but net sold the inverse ETFs, which yield double profits when prices fall, suggests they expect the index to rise.

With the U.S. Federal Reserve (Fed) and the European Central Bank (ECB) expected to maintain their current policy stance for the time being, foreign investors’ movements are anticipated to be positively influenced. Fed Chair Jerome Powell, in his semiannual monetary policy testimony to Congress, acknowledged that the higher-than-expected inflation environment might last longer than anticipated but maintained the existing view that it is temporary. Park Seokhyun, a researcher at KTB Investment & Securities, said, "Chairman Powell confirmed the need to verify further recovery in the labor market before deciding on tapering (asset purchase reduction), which means the market’s concern about a hasty Fed policy shift is excluded for the time being," adding, "In terms of market impact, this supports the continued stable flow of lower Treasury yields."

The ECB also fixed its policy target at 2%, despite the Eurozone consumer price inflation rate approaching 2% but slightly below it, and clearly stated it would not be affected by temporary price increases. Researcher Park said, "The firm confirmation of the unchanged monetary policy stance by the two major advanced country central banks indicates that the favorable global liquidity environment is continuing," adding, "The combination of a favorable global liquidity environment and low Treasury yields can positively affect IT stock returns and foreign investor trends in emerging market stock markets, which will be a driving force for the KOSPI’s attempt to break new highs."

However, the strong dollar is a negative factor for foreign investors’ return. On the 16th, the dollar index recorded 92.69 points, close to the year’s high. Jo Seungbin, a researcher at Daishin Securities, said, "A strong dollar is a negative factor for emerging market stocks," and analyzed, "Since the dollar’s movement affects investor preferences not only for emerging market stocks but also for major financial markets such as commodities, it is necessary to watch whether the dollar will shift to a weaker trend."

This content was produced with the assistance of AI translation services.