Foreign Investors Selling Domestic Stocks Increased Amid Strong Dollar Concerns

Won-Dollar Exchange Rate Fluctuates Above 1300 Won, Selling Pressure Intensifies
Strong Dollar May Continue as Interest Rate Hike Pause Could Be Delayed

Earlier this year, foreign investors who showed an unprecedented 'Buy Korea' stance have turned to net selling this week. This is the first time this year that foreign investors have sold more than they bought in weekly foreign demand. Concerns are rising that the foreign selling trend may continue for the time being, as the won-dollar exchange rate has fluctuated above the 1,300 won level for the first time in about two months, showing signs of instability.

According to the Korea Exchange Information Data System on the 24th, foreign investors net sold a total of 593.8 billion won worth of domestic stocks during this week (20th to 23rd, 4 trading days). They sold 470.3 billion won in the KOSPI market and 126.5 billion won in the KOSDAQ market, respectively.

Since the beginning of this year, foreign investors have purchased over 1 trillion won worth of stocks weekly in the domestic stock market. In particular, during the fourth week of January, despite the Lunar New Year holiday limiting trading days to just three, they net bought 2.843 trillion won, setting a record high. This influx of foreign demand was due to the won-dollar exchange rate dropping from the 1,270 won level at the start of the year to the 1,230 won level by the end of January, creating conditions favorable for foreign exchange gains, as well as high expectations for the domestic companies’ benefit from China's reopening of economic activities.

However, starting from early February, the scale of foreign net buying transactions sharply decreased. In the second week of February, it was 625.9 billion won, and in the third week, only 191.5 billion won, before turning decisively to net selling this week. The timing of the deterioration in foreign investors’ sentiment coincides with the won-dollar exchange rate, which had been falling since January but began rising after February 2nd (1,227 won).

Recently, the won-dollar exchange rate rose to the 1,300 won level for the first time in two months, and with the Bank of Korea’s decision to keep the base interest rate unchanged the day before, market participants’ concerns about the interest rate differential between Korea and the U.S. have increased. Kim Hak-gyun, head of the research center at Shin Young Securities, explained, "Foreign trading and the won-dollar exchange rate have a simultaneous signal nature," adding, "Basically, concerns about U.S. tightening are reducing global liquidity, and inflation worries recently appearing in the U.S. financial market are the main reasons behind the foreign selling trend."

Recently released U.S. economic indicators, including employment data, exceeded market expectations. Naturally, inflation concerns due to economic stimulus have resurfaced. As the Federal Reserve (Fed) may break the market consensus of a baby step (0.25 percentage point hike) and take a big step (0.50 percentage point hike), investment sentiment has deteriorated sharply. Additionally, there are forecasts that the timing of the U.S. peak interest rate may be delayed from March to after May, implying that the 'strong dollar' trend could last longer than expected.

Kim Hyung-ryul, head of the research center at Kyobo Securities, pointed out, "There is a tendency to overinterpret Fed Chair Jerome Powell’s messages," emphasizing, "The Fed’s stance remains hawkish." He added, "The financial market, including the stock market in March, may pass through turbulent waters," and "The emergence of scenarios where the interest rate hike pause is delayed could strongly resist the tech stock rally." Furthermore, he noted, "Unlike the stable U.S. economy, Korea, which has a high trade dependency, is confirmed to be under significant downward pressure on its economy, weakening the momentum for stock price increases."

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