[MarketING] How Long Will Foreign Buying Momentum Continue?

KOSPI Rises for 6th Day Thanks to Foreign Buyers
1.8 Trillion Won Net Purchase This Month

[Asia Economy Reporter Song Hwajeong] The KOSPI has continued its upward trend for six consecutive days. Foreign investors played a significant role. Over the past seven trading days this month, foreign investors have purchased 1.8 trillion KRW, reversing the sales from last month. There are expectations that foreign buying could further expand if fundamentals and exchange rate conditions support it.

Foreign Investors Accumulate 1.8 Trillion KRW in KOSPI This Month

As of 9:30 AM on the 11th, the KOSPI was trading at 2,358.85, up 7.54 points (0.32%) from the previous day. This marks the sixth consecutive day of gains. The KOSDAQ rose 8.59 points (1.23%) to 704.64.

The inflow of foreign buying has broadly contributed to the index's rise. Foreign investors are net buyers of 15.2 billion KRW in the KOSPI market and 13.4 billion KRW in the KOSDAQ market.

Except for one day this month, foreign investors have recorded net purchases in the KOSPI every day. Up to the previous day this month, they have net bought 1.828 trillion KRW. Last month, they were net sellers of 1.6995 trillion KRW. In other words, the amount sold over the past month was repurchased within seven trading days this month.

Amid global economic uncertainties such as recession concerns, the continuation of foreign investors' buying spree is analyzed to be due to their reduced weighting in the Korean stock market and exchange rate factors. Ji-young Han, a researcher at Kiwoom Securities, explained, "Despite rapid sector and theme rotations in the domestic stock market and macroeconomic uncertainties since the new year, the reason foreign investors switched to net buying is believed to be simple supply-demand and exchange rate factors, including low investment weighting in the Korean stock market and the won's appreciation." She added, "The foreign ownership ratio in the KOSPI remains below the 30% range, underperforming the historical average of the mid-30% range."

Yujun Choi, a researcher at Shinhan Investment Corp., said, "The foreign ownership ratio in the KOSPI fell to levels seen during the financial crisis due to the pandemic rally led by individuals and intense tightening. Considering off-market acquisitions through large-scale IPOs, the perceived intensity of foreign capital outflow was even higher." He continued, "After experiencing a year and a half of a bear market, the supply capacity of individuals and institutions has declined. With foreign ownership at bottom levels and the previously burdensome strong dollar easing, attention is focused on the expansion of foreign buying."

Further Expansion of Foreign Buying Expected if Exchange Rate Conditions Support

For foreign buying to further expand, fundamentals must support it. Ultimately, fundamentals determine the strength and duration of foreign capital flows.

Researcher Choi stated, "The real effective exchange rate reflects fundamentals by considering trade weights and purchasing power with trading partners. In the long term, the direction of the won's real effective exchange rate aligns with foreign ownership ratios." He added, "The won's real effective exchange rate depreciated to 2012 levels due to factors like export declines but rebounded after the October low. If this rebound continues, further expansion of foreign buying can be expected."

Given the currently low KOSPI level adjusted for exchange rates, the net buying trend by foreign investors is expected to continue. Researcher Han explained, "Despite the recent decline in the won-dollar exchange rate, considering that foreign investors perceive the KOSPI level to be below the 2,000 mark, intermittent net selling may occur, but it is appropriate to assume a mid-term net buying dominance."

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