Foreigners' Surprise Stock Shopping Last Month... Will October Be 'Sell Korea' Again?

Foreigners Net Purchase of 2.5 Trillion KRW in Domestic Listed Stocks in September
Net Buying Reversal After 4 Months
Net Selling of 2.3 Trillion KRW in October
Important Changes in Foreign Capital Flow Ahead of US Monetary Tightening
Warning of Possible Price Adjustment in Risk Assets Including Stocks

[Asia Economy Reporter Ji Yeon-jin] Last month, foreigners purchased about 2.5 trillion KRW worth of domestic stocks, marking a net buying turnaround after four months. However, this month they have unleashed a selling spree exceeding 2 trillion KRW, continuing the foreign investor exodus from the stock market. As the timing of the US monetary tightening approaches, there are concerns that foreign investors may start withdrawing funds, indicating the need for preparedness in the domestic financial market.

According to the 'September Foreign Securities Investment Trends' released by the Financial Supervisory Service on the 14th, foreigners net bought 2.505 trillion KRW in listed stocks and made net investments of 5.172 trillion KRW in listed bonds last month, totaling a net investment of 7.677 trillion KRW. Foreigners had been net sellers in the stock market every month since the beginning of this year, turned to net buying in April, but resumed selling stocks again after just one month, continuing a four-month streak of net selling.

Last month marked the end of this selling streak. However, it was merely a 'surprise shopping' event. Since the beginning of this month, foreigners have been net sellers every day. From the 1st of this month until the day before, foreigners net sold for six consecutive trading days except for the 7th. The net selling amount reached 2.303 trillion KRW, nearly matching last month’s net buying scale. They net sold 2.4498 trillion KRW worth of securities in the KOSPI market. However, in the KOSDAQ market, they are net buyers with 146.8 billion KRW. As of the end of last month, foreigners’ holdings of listed stocks stood at 769.2 trillion KRW, accounting for 28.1% of the market capitalization, down 0.1 percentage points from 28.2% the previous month.

Foreigners’ net investment in listed bonds last month was 5.172 trillion KRW, marking nine consecutive months of net investment. As of the end of last month, foreigners’ bond holdings reached 203.6 trillion KRW, setting monthly records since January this year.

In the domestic stock market, which has grown due to strong liquidity driven by the COVID-19 pandemic, the flow of foreign investors’ funds has become more important as US monetary tightening nears. The US tightening, which has supplied global liquidity, leads to a reduction in foreign investment funds, potentially impacting liquidity and price indicators across Korea’s financial sectors including the stock market, bond market, short- and long-term funding markets, and foreign exchange market.

According to a report published earlier this month by the Korea Capital Market Institute, the US Federal Reserve (Fed) is expected to announce a tapering schedule (reduction of asset purchases) within this year, begin tapering by the end of this year or early next year, and then raise interest rates in the second half of next year or the first half of 2023.

US monetary tightening could cause domestic demand contraction, increases in long-term interest rates and the value of the US dollar, and a retreat from risk asset preference.

In particular, if major countries worldwide start reducing liquidity following the US monetary tightening signal, prices of risk assets such as stocks are likely to be adjusted. Large institutional investors investing in global financial markets, funds including exchange-traded funds (ETFs), and global investment banks (IBs) are expected to reduce their holdings of representative risk assets such as stocks and real estate. Researcher Kim Jae-chil stated, "Assets whose values have risen based on growth prospects will be more negatively affected by rising discount rates," adding, "Regardless of the speed or scale of US monetary tightening, when tapering ends and the base interest rate rises, financial stability issues are expected to emerge in Korea as well, so from next year, considerations related to macroeconomic and financial policy formulation will be necessary."

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