'KOSPI Plummets' Foreigners Sell Off LG EnSol... Institutions Buy It While Selling Other Stocks

[Image source=Yonhap News]

[Asia Economy Reporter Lee Seon-ae] On the 27th, the KOSPI index closed down more than 3% due to massive selling by foreign investors. It barely held the early 2600 level after dropping nearly 100 points. The main cause of the index plunge was the foreign investors' selling spree. Foreigners sold off LG Energy Solution, while institutional investors sold other stocks to buy LG Energy Solution, leading to the index decline. The USD-KRW exchange rate also surpassed 1200 won, acting as a negative factor in supply and demand.

On that day, the KOSPI closed at 2614.49, down 94.75 points (3.50%) from the previous day. It started flat and attempted to rise early in the session, but quickly plunged as foreign selling flooded the market, breaking below the 2610 level before closing.

The KOSPI closing price is 12.20% lower than last year's closing price. After the last rebound on the 20th, it plunged 8.67% over five trading days. The rapid fall from 2988 at the start of the year to 2614 in a short period has led to assessments that panic selling has intensified.

On that day, foreign investors sold 1.6382 trillion won worth of stocks in the KOSPI market. Although institutions bought 1.8044 trillion won worth, they could not prevent the index from falling. Lee Jae-man, a researcher at Hana Financial Investment, focused on the sharp selling by foreigners. He pointed out, "Strong selling by foreigners was observed not only in Korea but also in emerging markets such as Taiwan and India," adding, "The selling is concentrated in manufacturing-based emerging markets with high risk due to rising interest rates."

Jerome Powell, Chairman of the U.S. Federal Reserve (Fed), made hawkish remarks after the Federal Open Market Committee (FOMC) meeting, volatility increased due to the entry of LG Energy Solution into the stock market, and geopolitical risks escalated, all of which sharply froze investor sentiment ahead of the Lunar New Year holiday.

The biggest cause of the decline was the FOMC meeting of the U.S. Federal Reserve that ended overnight. The statement released after the meeting included the already expected plan to raise the benchmark interest rate at the March FOMC. However, Powell's press conference after the meeting pulled down the rising U.S. stock market, and this impact extended to the Korean market.

At the press conference, Chairman Powell said, "There is quite a bit of room to raise rates without threatening the labor market." This suggested the possibility of multiple rate hikes. As a result, the 10-year U.S. Treasury yield quickly surpassed 1.8%, soaring to 1.87%.

Geopolitical risks are also escalating. Near the Korean Peninsula, North Korea fired two short-range ballistic missiles into the East Sea around 8 a.m. that day. Tensions around Ukraine continued as well. Senior diplomats from Russia, Ukraine, France, and Germany met in Paris for a four-party summit, but the statement only reaffirmed efforts for a ceasefire in general terms.

Within the Korean stock market, volatility increased as LG Energy Solution, the largest initial public offering (IPO), was listed, absorbing supply and demand. LG Energy Solution opened at 597,000 won, 99% higher than the public offering price, but plunged to close at 505,000 won, down 15.41% from the opening price.

Seo Sang-young, a researcher at Mirae Asset Securities, said, "The biggest factor in the decline that day was the supply and demand disruption caused by LG Energy Solution." He explained, "Foreigners sold LG Energy Solution immediately after its listing, while institutions sold other stocks to buy LG Energy Solution." On that day, foreigners net sold LG Energy Solution stocks worth 1.4968 trillion won. Most of the total selling volume was concentrated on LG Energy Solution alone.

Top market capitalization stocks also mostly declined. LG Chem, the parent company of LG Energy Solution, fell 8.13%. Samsung SDI also dropped by around 6%. Samsung Electronics and SK Hynix fell by about 3% each.

Han Ji-young, a researcher at Kiwoom Securities, analyzed, "After the January FOMC regular meeting, uncertainty about the Fed's accelerated tightening reemerged," adding, "As a result, U.S. interest rates surged again and the U.S. futures market turned downward, causing the KOSPI to plunge." She further noted, "In addition to external negative factors, the supply and demand distortion among market participants due to LG Energy Solution's inclusion and cautious sentiment ahead of the Lunar New Year holiday are reinforcing negative feedback on the domestic stock market."

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