Unstoppable Cell Korea.. "When Will the Bottom Come?"

Foreign Investors' Share in Stock Market Falls Below 30%
Drops to 32% Range Only in KOSPI
Won Weakness Accelerates Foreign Outflow
Semiconductor Market Slowdown Also a Negative Factor

[Asia Economy Reporter Hwang Junho] Although the KOSPI has declined for eight consecutive trading days, the securities industry is raising forecasts that the bottom is still not in sight. Various negative factors such as past foreign investor withdrawals, continued weakness of the Korean won, and a slowdown in the semiconductor market are expected to increase downward pressure on the stock market.

Continued Reduction in Foreign Investor Share Expected

[Image source=Yonhap News]

According to the Korea Exchange on the 18th, the proportion of foreign ownership in the entire Korean stock market stood at 29.10% based on market capitalization. This is the lowest since April 8, 2016. Since dropping from the 30% range on the 5th, the share has been steadily decreasing. At the current trend, it could fall to the 28% range. The share within the KOSPI also fell from 34.12% at the beginning of this month to 32.78%.

The securities industry believes that the foreign ownership share in the KOSPI could decrease to 31%. After the financial crisis, between May and October 2010, it recorded 31% before rebounding, and in 2016, when concerns about the Chinese economy surged, it also dropped to around 31% before rising again.

Ha Inhwan, a researcher at KB Securities, said, "Comparing to the period before and after the financial crisis (2007?2010), there was a net selling of 65 trillion won, and up to the 17th of this month, a cumulative net selling of 59 trillion won has occurred, so an additional withdrawal of 5 to 6 trillion won can be expected." He added, "The turning point to net buying is likely to be around the end of the third quarter to the beginning of the fourth quarter this year."

Continued Weakness of the Korean Won Expected

As the Korean won weakens noticeably, the possibility of foreign investor withdrawal has increased. On the 17th, the won-dollar exchange rate surged to its highest level in 11 months. It closed at 1,176.30 won, up 7.30 won from the previous trading day's closing price. During the session, it reached 1,179.00 won. This is the highest level since September 16 last year (1,181.50 won intraday high) and September 15 (1,179.00 won closing price).

Han Ji-young, a researcher at Kiwoom Securities, explained, "Foreign investors usually consider both capital gains and foreign exchange gains when investing in the domestic stock market. The recent weakness of the Korean won seems to have reduced the attractiveness of investing in the Korean stock market." She added, "Although the current exchange rate appears to be overshooting when considering the current account balance and other factors, the possibility of it stabilizing downward in the short term is low." The strong dollar phenomenon continues as the possibility of early tapering by the U.S. Federal Reserve (Fed) reignites, and it is expected to take time to resolve this. The minutes of this month's Federal Open Market Committee (FOMC) meeting will be released tonight.

Continued Negative Outlook for Semiconductor Industry

The negative outlook for the semiconductor sector, which accounts for 20% of the domestic stock market capitalization, continues. On the 16th (local time), Hong Kong-based securities firm CLSA lowered Samsung Electronics' target price from 86,000 won to 84,000 won, and SK Hynix's from 123,000 won to 114,000 won. On the 9th, due to a shift in the DRAM market, they had already lowered the target prices for Samsung Electronics (110,000 won) and SK Hynix (172,000 won), and now they have lowered them again within a week.

CLSA stated, "We maintain a cautious approach to memory semiconductors," and "The average selling price of memory is expected to decline by 25% from the fourth quarter of this year through the fourth quarter of next year."

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