South Korea's benchmark KOSPI is struggling to find a floor, weighed down by persistent geopolitical risk in the Middle East and surging U.S. Treasury yields and crude oil prices. With the local market stuck in a narrow range since August, even the foreign retail money that flowed in during the first half is now heading for the exit. Samsung Electronics (005930.KS) and SK hynix (000660.KS) are buying back their own shares at a pace of 1.6 trillion won ($1.2 billion) a day to prop up the index, but foreign investors are unloading positions to lock in gains.
The KOSPI closed at 6,562.72 on the 2nd, down 3.99%, or 273.08 points, according to the Korea Exchange. News that China's ChangXin Memory Technologies (CXMT) is producing small volumes of HBM3E, a fifth-generation high-bandwidth memory chip, added to the pressure. Samsung Electronics fell 4.02% to 250,500 won, while SK hynix dropped 4.73% to 1,613,000 won. Of 911 stocks, 735, or 80%, declined. The KOSDAQ also finished lower, down 17.27 points, or 2.10%, at 803.98, extending its losing streak to a third session.
Other major Asian markets were equally exposed to Middle East risk. Japan's Nikkei 225 plunged 2.85% to 64,325.64, and Taiwan's Taiex fell 1.67% to 46,164.72.
On the main board, foreign and institutional investors have been using corporate purchases as an exit ramp — Samsung Electronics buying shares for employee stock compensation and SK hynix buying shares for cancellation. Since SK hynix began its buyback on the 20th of last month through the 2nd, foreign investors sold a net 9.8361 trillion won and institutions a net 4.0645 trillion won, for a combined 13.9006 trillion won in net selling. That equals 92.14% of the 15.0864 trillion won in net buying by other corporate entities over the same period. On the 2nd alone, foreign investors sold a net 1.9093 trillion won and institutions 2.0433 trillion won, while retail investors absorbed 2.3023 trillion won.
Deteriorating external conditions are also turning foreign investors away. With renewed military clashes between the United States and Iran, the U.S. 10-year Treasury yield rose above 4.80%, its highest level since January last year, and crude oil jumped more than 5%, pushing West Texas Intermediate for October delivery past $91 a barrel. Futures markets now put the probability of a U.S. rate increase in September at more than 70%. Higher rates and higher oil are driving a broad retreat from risk assets.
The foreign "sell Korea" move is also visible in U.S.-listed exchange-traded funds tied to Korean equities. According to BlackRock, net inflows into the iShares MSCI South Korea ETF (EWY), the flagship Korea fund, totaled $369.61 million (about 505.3 billion won) in August, down 92.3% from a record $4.77477 billion (about 6.5276 trillion won) in July. EWY has drawn a total of $9.41375 billion (about 12.8695 trillion won) in net inflows through August this year.
The Direxion Daily MSCI South Korea Bull 3X ETF (KORU), a leveraged product that tracks the KOSPI at three times its move, saw net outflows of $211.23 million (about 288.8 billion won) in August. KORU has been shunned since a $1.86 billion (about 2.5428 trillion won) redemption on June 15, with money continuing to leave. The Roundhill Memory ETF (DRAM), effectively a half-Korea fund with Samsung Electronics and SK hynix accounting for close to 50% of its holdings, posted net outflows for seven straight sessions from the 20th of last month, losing a total of $1.116 billion (about 1.5257 trillion won) in the second half of August alone. That marks a clear reversal from June and July, when the fund took in $17.05 billion (about 23.3091 trillion won) over two months.
"AI demand remains intact, but the climb in long-term U.S. Treasury yields is raising doubts about whether Big Tech can sustain its capital spending," said Kim Seok-hwan, an analyst at Mirae Asset Securities. "If the high-rate environment persists on fiscal uncertainty abroad and geopolitical risk, foreign investors are likely to keep taking profits and pulling money out of large-cap semiconductor stocks."
