[MarketING] Will Foreign Investor Supply Show Signs of Speed Adjustment?

KOSPI Drops in One Day
KOSPI and KOSDAQ Index Directions Diverge Due to Foreign Investors

The KOSPI closed lower after a day of gains. The KOSDAQ continued its upward trend for the second consecutive day. Foreign investors' supply and demand caused the two indices to move in opposite directions. While foreign buying had been sustained due to the inflow of funds relocating from China, there are forecasts that the pace of foreign investment may slow down as valuation pressures on the Korean stock market increase.

KOSPI Weakens After One Day... Falls Below 2630

On the 12th, the KOSPI closed at 2,629.35, down 11.81 points (0.45%) from the previous day. The KOSDAQ ended the session at 885.76, up 2.05 points (0.23%).

[Image source=Yonhap News]

With foreign buying diverging, the fortunes of the KOSPI and KOSDAQ also split. Foreign investors sold a net 340.7 billion KRW in the KOSPI market but bought a net 43.5 billion KRW in the KOSDAQ market. In the futures market, foreigners sold 893.9 billion KRW. Institutions were net sellers of 15.6 billion KRW and 24.8 billion KRW in the two markets respectively, while individuals showed the opposite trend by buying 345.2 billion KRW and 13.9 billion KRW respectively.

Seokhwan Kim, a researcher at Mirae Asset Securities, analyzed, "Ahead of major global stock market events this week, profit-taking emerged in the domestic market. Foreign investors showed a selling bias in both spot and futures markets, leading to a decline in the KOSPI, but the KOSDAQ rose slightly amid strength in secondary battery stocks driven by non-arbitrage net selling."

Secondary battery stocks led the KOSDAQ's rise, buoyed by Tesla's positive momentum. On the day, L&F rose 4.40%, EcoPro increased 3.28%, and EcoPro BM went up 0.56%. Secondary battery stocks also showed gains in the KOSPI market. LG Energy Solution rose 0.49%, Samsung SDI 0.68%, POSCO Future M 0.52%, and Cosmo Advanced Materials surged 4.13%.

Tesla's strength translated into gains for secondary battery stocks. In the previous day’s U.S. market, Tesla rose 4.06%. Following Ford, General Motors (GM) mentioned using Tesla’s charging facilities, which contributed to the rally. GM’s announcement, following Ford’s, reinforced the leadership in standardizing charging infrastructure in the electric vehicle industry, positively influencing investor sentiment.

Foreign Buying Slows Down, Is a Speed Adjustment Underway?

Foreign investors, who had supported the rise in the domestic stock market, have recently shown signs of slowing down their buying. This month, foreigners showed a net buying position in the KOSPI market on only two out of seven trading days. This contrasts with May, when there were only four days with net selling bias throughout the month.

There is an analysis that valuation pressures on the Korean stock market may lead to a slowdown in foreign buying.

According to Shin Young Securities, foreign buying continued as funds relocating from China were dispersed and flowed into Korea, Japan, and Taiwan. So-yeon Park, a researcher at Shin Young Securities, said, "Assuming global emerging market tracking funds amount to 1.8 trillion KRW and calculating the total funds allocated to the Korean market, if 10% of all emerging market (EM) funds implement a de-China strategy, the amount allocated to Korea would be 7.2 billion USD, which converts to about 9 trillion KRW (assuming an exchange rate of 1,300 KRW/USD). If 20% implement the de-China strategy, 14.4 billion USD could flow in. The cumulative net foreign buying in the KOSPI this year is about 14 trillion KRW, and assuming 20% of EM funds implement the de-China strategy, an additional 3 to 4 trillion KRW could flow in," she explained.

The problem is that valuation pressures have increased due to the rise in the domestic stock market. Park said, "Currently, Korea's valuation premium compared to the Chinese stock market has expanded to 41%. This is a level not seen since 2000. As of the 7th, based on the 12-month forward price-to-earnings ratio (PER), Korea rose to 13.8 times, while China was only 9.5 times." She added, "Even if the economy recovers and earnings per share (EPS) are revised upward, foreign buying may slow down due to the current valuation burden."

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