'Black September'... Foreigners Sell Every Day Except One on KOSPI

Foreigners Net Sell 2.36 Trillion KRW in September
KOSPI Market Cap Share Falls to 30.7%
Lowest Level Since Financial Crisis
Semiconductor Sector Sell-off
Samsung Electronics Net Sell 1.7869 Trillion KRW
KOSPI Down 7.9% in September
12.2% Drop from August Peak

[Image source=Yonhap News]

[Asia Economy Reporter Hwang Yoon-joo] Since September, foreign investors have been accelerating their exit from the domestic stock market. Until the 27th, they recorded net selling every day except for one day in the KOSPI market. In particular, the 'sell-off' trend was prominent in the semiconductor sector, including Samsung Electronics and SK Hynix.

According to the Korea Exchange on the 28th, foreign investors net sold 2.3667 trillion KRW in the KOSPI market from September 1 to 27. In the KOSDAQ market, they net sold 490.9 billion KRW. Except for one day on the 13th, they consistently net sold, showing signs of withdrawing from the KOSPI market.

Since September, the KOSPI has fallen 7.9%, from 2415.61 on September 1 to 2223.86 on September 27. Notably, the index broke below the 2200 level during trading the previous day. The KOSPI had shown an upward trend in the second half of the year, peaking at 2533.52 on August 16, but failed to maintain momentum. Currently, the KOSPI is down 12.2% compared to the August peak.

The proportion of foreign investors in the KOSPI market capitalization also dropped to 30.7%, the lowest level in 13 years and 1 month since August 2009 during the financial crisis (30.4%).

Foreign investors are particularly withdrawing from the semiconductor sector. So far in September, foreign investors have sold 1.7869 trillion KRW worth of Samsung Electronics, the largest by market capitalization. Except for two days on the 13th and 23rd, selling dominated. The stock price fell 7.1%, from 58,400 KRW to 54,200 KRW. SK Hynix, ranked third in market capitalization, was also net sold by 301 billion KRW. It was sold continuously for eight trading days starting September 16. Its stock price also dropped 11.2%, from 92,400 KRW to 82,000 KRW.

Negative outlooks on the semiconductor industry and concerns over declining earnings are interpreted as reasons for foreign investors' sell-off. There is growing concern about weakening semiconductor demand due to the 2023 economic downturn and the decline in memory prices.

Seong-yeon Seo, a researcher at Shin Young Securities, analyzed, "Despite the third quarter being a peak season, the increase in memory semiconductor orders is limited," adding, "Third-quarter memory semiconductor earnings are expected to decline quarter-over-quarter due to lower-than-expected memory shipments and price drops." She further noted, "Fourth-quarter earnings are also expected to continue the decline trend due to weak year-end seasonal effects and inventory adjustments by downstream companies."

[Image source=Yonhap News]

The reasons foreign investors are leaving the domestic stock market include concerns over an economic recession due to the Federal Reserve's (Fed) aggressive tightening and the strength of the US dollar. On the 22nd, the Federal Open Market Committee (FOMC) decided on a third consecutive giant step (a 75 basis point hike in the benchmark interest rate), raising the upper limit to 3.25%.

The 'dot plot,' which indicates the Fed officials' tightening direction, delivered a shock. Officials projected the benchmark interest rate to reach 4.25-4.5% by the end of the year and 4.5-4.75% next year. The more hawkish stance than expected has led to a consensus that a hard landing of the economy is unavoidable.

Consequently, the dollar's strength has also intensified. The won-dollar exchange rate, which had a psychological threshold of 1350 KRW on September 1 (closing basis), surpassed 1400 KRW on the 22nd, right after the FOMC meeting. If the won weakens further, foreign investors may realize gains in the domestic stock market but suffer investment losses due to exchange rate losses.

Seong-young Seo, head of the Media Content Division at Mirae Asset Securities, said, "The biggest reason foreign investors are net selling in the KOSPI is the economic recession," adding, "In August, they net bought expecting a rebound, but from September, the market's focus shifted to recession." Seo pointed out, "Since Korea is highly export-dependent, foreign investors inevitably sell during recessions. The exchange rate is also unfavorable." He analyzed, "Currently, the KOSPI index has fallen more than during the financial crisis, but if Eurozone risks do not spread, stability is expected from October."

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