Foreigner-Driven Unstoppable 'Sel Korea'... "Preference for Safe Assets"

Sold 8 Trillion Won of Domestic Stocks This Year
KOSPI Foreign Ownership Drops to 31%

[Asia Economy Reporter Kwon Jae-hee] Amid the ongoing ‘sell Korea’ movement by foreigners this year, this trend is expected to continue for the time being. The usual causes cited for the sell Korea phenomenon are instability in South Korea’s economic fundamentals and the rise in exchange rates. However, since foreign funds are flowing into government bonds and the bond market, the cause of sell Korea is increasingly interpreted as a preference for ‘safe assets’ due to the rising exchange rate rather than doubts about the basic strength of the Korean economy.

According to the Korea Exchange on the 15th, foreigners have sold a total of 8.06 trillion won worth of domestic listed stocks up to the previous day this year. Among these, foreigners net sold 4.852 trillion won in the KOSPI market and 3.208 trillion won in the KOSDAQ market. The proportion of KOSPI stocks held by foreigners fell to 31%, the lowest in six years.

Experts interpret the recent sell Korea movement by foreigners as a preference for safe assets. Kim Hak-gyun, head of the research center at Shin Young Securities, analyzed, "Although foreign selling has continued over the past three years, the selling trend continuing since January this year can be seen as a preference for safe assets."

It is fortunate that concerns about the fundamentals of the Korean economy are not the cause, but since this is due to external variables, pessimistic views suggest that foreign demand is unlikely to return anytime soon. In particular, with the U.S. Federal Reserve’s (Fed) interest rate hike imminent, it is a natural flow for foreigners to reduce their holdings of Korean stocks, which are classified as risky assets, from a portfolio rebalancing perspective.

Kim said, "It will be difficult for foreign demand to come in immediately," and diagnosed, "The Russia-Ukraine issue combined with the tightening cycle will act as negative factors for foreign demand."

Lee Kyung-soo, head of the research center at Meritz Securities, also analyzed, "The recent trend should be seen as a contraction in investment sentiment toward risky assets rather than a variable specific to Korea," adding, "Basically, the dollar is showing a strong trend, which is accompanied by foreign selling."

Due to the recent rise in raw material prices caused by the Russia-Ukraine situation, South Korea, which imports most raw materials, is structurally bound to experience a worsening trade balance. As a result, the exchange rate rises, the value of the won falls, and the value of Korean stocks inevitably declines.

Experts have suggested that several preconditions must be resolved for foreign demand to return to the Korean stock market.

Lee explained, "First, there must be expectations that inflationary pressure will ease through a decline in oil prices, and the Fed’s tightening intensity must decrease." He further noted that the dollar must shift from a strong to a weak trend for foreigners to return to purchasing non-dollar assets. Additionally, since the Russia-Ukraine situation has contributed to inflationary pressure, it must be resolved to ease these pressures.

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