Departing Foreigners... Selling Pressure Intensifies as Won Value Declines

Foreign Investors Exit Domestic Stock Market Due to Won Depreciation and Other Factors

[Asia Economy Reporter Hwang Junho] The foreign investors' share in the stock market falling to 29% for the first time in over five years is analyzed to be due to the decreased attractiveness of the domestic stock market. Specifically, factors include the economic damage caused by the spread of the COVID-19 Delta variant, capital market changes due to tapering (asset purchase reduction) issues, US-China trade conflicts and China's strengthened corporate regulations, and concerns over a global economic 'peak-out.'

Among these, the rise in the won-dollar exchange rate is noteworthy. As of 10:30 AM on the 10th, the won-dollar exchange rate recorded 1148.90. While it was only around 1110 to 1130 won in the second quarter, the won-dollar exchange rate has gradually risen, acting as selling pressure from foreign investors.

Kim Daejun, a researcher at Korea Investment & Securities, analyzed, "The normalization of monetary policy by the Federal Reserve, the US central bank, optimistic sentiment about the US economic recovery, and rapid COVID-19 vaccination have influenced the dollar's strength," adding, "Accordingly, the net selling pressure from foreigners in the domestic stock market has intensified."

The value of the won is at a crossroads to weaken further this month. First, the spread of the COVID-19 Delta variant is damaging South Korea's economic fundamentals. The government's strengthened quarantine measures due to the increase in confirmed cases are also unfavorable for the stock market. Externally, China's yuan depreciation is inducing won depreciation. Researcher Kim explained, "Considering China's corporate regulations, the resulting capital outflow, and the economic slowdown confirmed by indicators, yuan depreciation will continue, which will also affect the won."

The foreign investor share below 30% due to the sustained 'Sell Korea' trend this year is a level below the average during the financial crisis period. According to Hana Financial Investment, there have been a total of four periods in the past 10 years when the foreign holding ratio shrank, including this time.

Paradoxically, this low foreign investor share supports the analysis that it is difficult to see this as the start of a full-scale Sell Korea. Lee Jaeseon, a researcher at Hana Financial Investment, explained, "We see a low possibility of further price adjustments in emerging markets," adding, "There is no rapid outflow of foreign passive funds either."

He also viewed the exchange rate level as not yet a cause for concern. The researcher emphasized, "When comparing the net foreign trading intensity in KOSPI and KOSDAQ over the past 10 years, strong selling occurred around the 1200 won level."

Meanwhile, as of 10:30 AM on the 10th, foreigners net sold 322.5 billion won in KOSPI and 118.2 billion won in KOSDAQ.

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