Institutional Investors Shift to Net Buying: Reasons and Outlook [Click eStock]

A Revival of the 2000s Fund Boom...
ETF-Led Momentum on the Rise
Earnings Improvement and Dividend-Friendly Policies
Potential for Expanded National Pension Service Investments

Yonhap News Agency

Institutional investors are shifting to net buying of domestic stocks. Analysts attribute this trend to improvements in the stock market environment, such as better corporate earnings and policies to increase dividends. As this pattern resembles the era of the past fund boom, experts emphasize the importance of monitoring whether earnings forecasts are being revised upward.

According to the Korea Exchange on October 29, institutional investors made net purchases totaling 2.7991 trillion won in the KOSPI market from the beginning of this month through the previous day. This marks a reversal from a net sell-off of 185.1 billion won in August to net buying of 2.2087 trillion won in September and continued buying momentum in October.

Hana Securities cited the upward revision of fundamentals as the primary reason for the shift to net buying. In particular, the firm noted that the semiconductor sector is experiencing a rapid surge in earnings momentum. Earnings estimates for the semiconductor segment for next year have been revised upward by more than 50% over the past three months.

Improvements in the domestic stock market environment, such as policies to increase dividends, along with a surge in individual investments in exchange-traded funds (ETFs), have also contributed to the institutional buying trend.

The influence of the National Pension Service is also cited as a key factor. Lee Kyungsoo, a researcher at Hana Securities, stated, "There is a possibility that the current administration will call for an increase in the National Pension Service's allocation to domestic stocks, and expectations are rising for higher insurance premium rates and improved investment performance. Even without these factors, if the National Pension Service's domestic equity allocation target rises from 190 trillion won, or 14.9% of the expected 1,272 trillion won in assets at the end of this year, to 202 trillion won, or 13% of the projected 1,555 trillion won in assets by 2029, additional net buying will be necessary over the next three years."

The recent prominence of institutional investors in both buying and selling transactions is also noteworthy. This is seen as similar to the market dynamics during the fund boom from 2000 to 2010, when institutions led the market. Currently, ETFs have replaced traditional funds as the dominant market trend, structurally expanding the influence of institutional capital.

Researcher Lee explained, "In the medium to long term, persistent net selling by institutions has led to a reduced allocation to domestic stocks and redemptions from active funds, structurally limiting the performance of stocks held by institutions. However, since the second half of last year, the shift to net buying by institutions has become more pronounced, easing the downward pressure on the stock prices of stocks that had previously been under institutional selling pressure." If institutions continue to maintain net buying in the domestic stock market, those stocks could emerge as the core drivers of market outperformance (alpha).

Furthermore, the basic structure of institutional portfolio management is fundamentally a performance-based stock price determination mechanism. Researcher Lee emphasized, "Ultimately, in an institution-driven market, not only the intensity of net buying by institutions but also whether there is an accompanying upward trend in earnings forecasts is key."

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