Fierce Battle at the 3,200 Mark: What Are the Downside Risks for the KOSPI?

As the KOSPI, which had been racing toward an all-time high, enters a prolonged period of consolidation, attention is focusing on the underlying factors. Analysts point out that, amid rising external uncertainties, a pronounced wave of individual investor selling is holding back further gains.

According to the Korea Exchange on July 22, the KOSPI closed at 3,210.81 the previous day, up 0.71%. While individual investors alone sold more than 1 trillion won, foreign investors and institutions?who have been net buyers for eight consecutive trading days?purchased a combined 997.2 billion won, supporting the index. While securities and shipping stocks, which had previously led the market, have been sluggish, previously overlooked sectors such as secondary batteries, shipbuilding, and steel are regaining attention, resulting in fierce competition around the 3,200 level.

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The ongoing 'Sell Korea' trend among retail investors, known as Donghak Ants, since May is cited as one of the factors behind this trend. While foreign investors, who bought 2.6926 trillion won last month and drove the KOSPI rally, have continued to be net buyers this month with 2.7314 trillion won, individual investors have sold more than 3 trillion won, deepening their selling trend compared to last month (when they were net sellers of 581.1 billion won). Customer deposits, often considered stock market sideline funds, also peaked at 70 trillion won on July 1 and have since fallen to the 66 trillion won range.

Kim Jaeseung, a researcher at Hyundai Motor Securities, pointed out, "While it is positive that foreign capital flows, which generally determine the direction and level of the KOSPI, have continued since May, the lack of interest from individual investors is a factor that weakens the KOSPI's potential for further gains." He added that alternatives to the KOSPI are becoming more attractive, as evidenced by the Nasdaq and S&P 500 recently hitting record highs and the US House passing three major crypto asset bills during 'Crypto Week.' According to the Korea Securities Depository's securities information portal, as of July 17, the amount of US stocks held by domestic investors reached an all-time high of $132.916 billion (about 185 trillion won).

Rising external uncertainty is also weighing on investor sentiment. This is because, with US President Donald Trump’s scheduled end to the mutual tariff moratorium on August 1 approaching, major countries such as the European Union and Japan are facing difficulties in negotiations. As a result, the won-dollar exchange rate, which had dropped to the 1,350 won range just last month, has climbed back to the 1,390 won range for the first time in two months since May and is now approaching 1,400 won. This is a negative factor for foreign investors’ net buying trend in the KOSPI. Kim predicted, "The KOSPI is likely to take a breather amid uncertainties in July and August."

However, the market still holds out hope for 'Taco' (Trump always chickens out), the expectation that Trump will ultimately back down. With the US midterm elections coming up next year, President Trump may seek a last-minute deal on mutual tariffs to boost the economy and the stock market.

Heo Jaehwan, a researcher at Eugene Investment & Securities, said, "While the stock market's upward trend is likely to slow during the summer as the mutual tariff negotiation period ends on August 1 and Federal Reserve policy uncertainties are resolved, it is difficult to conclude that the upward trend is over. Attention should be paid to sectors that have already undergone corrections (such as shipbuilding, defense, and nuclear power) or have been overlooked (such as pharmaceuticals, bio, and healthcare)."

Kim Kyungtae, a researcher at SangSangIn Securities, stated, "To enter the KOSPI 4,000?5,000 era as pursued by the current administration, an additional inflow of 500 trillion to 1,500 trillion won is needed. Since pension funds have nearly reached their target allocation for domestic equities, their capacity for further purchases is limited. Therefore, it is ultimately important for foreign investors’ buying momentum to continue."

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