Foreign investors, who earlier this month joined institutions in driving the KOSPI back above the 7,000 mark, have sold nearly 12 trillion won ($8.5 billion) worth of Korean shares over six consecutive sessions. Analysts say the abrupt slide in the won-dollar exchange rate strengthened the case for profit-taking as foreign funds trimmed exposure to Korea, seen as a risk asset, ahead of the U.S. Federal Open Market Committee meeting. Brokerages said the KOSPI, which held above 6,700 even under concentrated foreign selling, could attempt a rebound once monetary policy uncertainty clears.
The KOSPI closed at 6,717.97 on the 16th, up 1.37% from the previous session, its first gain in five sessions, according to the Korea Exchange. Foreign investors sold a net 1.68 trillion won on the day, extending net selling to 11.95 trillion won over six sessions since the 9th. They had shown signs of returning with net purchases of 3.71 trillion won over four sessions from the 3rd through the 8th before reversing to a "sell Korea" stance. Institutions also sold a net 629.3 billion won over the same period, while individuals and other corporations absorbed the selling with net purchases of 2.67 trillion won and 9.89 trillion won, respectively.
As investor sentiment cooled, average daily turnover on the KOSPI fell to 20.97 trillion won this month, the lowest level this year. Turnover had surged from 27.06 trillion won in January to 50.35 trillion won in June, meaning it has since fallen by more than half from that peak. Turnover on the 16th came to 15.86 trillion won, the smallest daily figure this year.
Foreign investors focused on clearing out chip holdings. Of their net KOSPI selling over the six sessions from the 9th through the 16th, 93.52% was concentrated in two stocks: Samsung Electronics (005930.KS) at 6.29 trillion won and SK hynix (000660.KS) at 4.88 trillion won. Daily share buybacks worth about 1.6 trillion won by Samsung Electronics and SK hynix effectively served as an exit route for foreign funds.
Over the same period, foreign investors bought a net 7.42 trillion won worth of other shares, with more than 1 trillion won each going to SK Innovation (1.54 trillion won), GS (1.27 trillion won), Korean Air (1.24 trillion won), Hyundai Mobis (1.22 trillion won), Woori Financial Group (1.11 trillion won) and Alteogen (1.05 trillion won). Analysts read the moves as sector rotation into manufacturing names that had been overlooked and into financial stocks seen as beneficiaries of higher interest rates.
Brokerages said a weaker dollar, normally considered a positive for foreign inflows, paradoxically spurred large-scale profit-taking. The won-dollar rate, which had run as high as the 1,550 range as recently as early July, tumbled to the low 1,300s, giving foreign investors who had built up paper gains on the first-half chip rally an opening to capture both share-price and currency gains. "As the won strengthened steeply in a short span, foreign investors got a chance to unload profitable chip positions and lock in currency gains at the same time," said Kim Tae-hong, chief executive of GrowthHill Asset Management. "Concern that major Korean export heavyweights could fall short of market expectations in the third-quarter earnings season because of the sharp drop in the exchange rate was another factor that triggered preemptive selling."
A surge in U.S. Treasury yields and tightening uncertainty ahead of the September FOMC meeting also pushed foreign investors out. "With the 10-year U.S. Treasury yield above 5%, the required return hurdle for risk assets such as equities has risen," said Shin Joong-ho, head of research at LS Securities. "Global funds moved to reduce risk by selling first the large-cap chip names that are the easiest to convert to cash in emerging markets."
Brokerages see a positive signal in the fact that the KOSPI defended the 6,700 line even as foreign investors unloaded close to 12 trillion won worth of stock. "Foreign investors are rotating into defensive banks and undervalued sectors, so if bond yields stabilize after the FOMC meeting, market sentiment should calm quickly," said Lee Jin-woo, head of research at Meritz Securities.
