Foreign investors sold a net 21 trillion won worth of shares on South Korea's main stock market in September, extending their selling streak to a fifth consecutive month. Market watchers attributed the continued exodus from the KOSPI — even with the won trading in the 1,300-per-dollar range — to a combination of reduced exposure to risk assets amid rising U.S. interest rates and profit-taking in large-cap semiconductor stocks. Analysts said reversing the trend will require more than strong current earnings: it will take confidence in next year's profits and stability in interest rates.
Foreign investors sold a net 21.5108 trillion won on the KOSPI in September, according to the Korea Exchange on the 30th. Individual investors also sold a net 14.237 trillion won over the same period, while institutions bought a net 4.4178 trillion won and other corporations bought a net 31.3992 trillion won. In effect, share buybacks by Samsung Electronics (005930.KS) and SK hynix (000660.KS) propped up the market. Cumulative net selling by foreign investors over the five months reached 134.9195 trillion won.
The selling was concentrated in large-cap chip stocks. SK hynix accounted for 11.5805 trillion won and Samsung Electronics for 4.892 trillion won, with the two names making up 76.6% of total net selling in September. Samsung Electronics preferred shares (005935.KS) at negative 1.0379 trillion won, Doosan Enerbility (034020.KS) at negative 578.4 billion won and Doosan (000150.KS) at negative 420.1 billion won also ranked among the most heavily sold. By contrast, SK Square (402340.KS) drew net buying of 723.8 billion won, while Woori Financial Group (316140.KS) at 473.7 billion won, Korean Air (003490.KS) at 294.4 billion won, SK Innovation (096770.KS) at 293.6 billion won and GS (078930.KS) at 214.6 billion won also attracted inflows.
Rising long-term U.S. interest rates are cited as the key factor amplifying selling pressure from overseas investors. On the 29th, the yield on the 10-year U.S. Treasury note climbed as high as 5.29% during the session, its highest level since 2007, while the 30-year yield surged to 5.62%, the highest since 2002. Higher Treasury yields diminish the relative appeal of emerging market equities and add to valuation pressure on growth stocks. Chung Yong-taek, senior research fellow at IBK Investment & Securities, said foreign selling reflects a move to trim risk assets as rates rise. "Investors are reacting more sensitively to interest rates and future earnings outlooks than to the strong results already priced into share prices," he said.
Share price gains and expanding market capitalization weightings in large-cap chip stocks also appear to have spurred profit-taking and portfolio adjustments. In September, Samsung Electronics and SK hynix rose 3.27% and 6.09% respectively from the previous month, and the two stocks' combined share of KOSPI market capitalization increased 2.04 percentage points to 50.85% from 48.81%. With the pair accounting for more than half of the index, the structure makes it likely that selling concentrates on those two names when foreign investors reduce their Korean equity exposure. Quarter-end rebalancing of asset weightings by global pension funds is also seen as a factor late in the month. When equity returns outpace bonds, stock sales can occur in the process of restoring target allocations.
Brokerages said South Korea's export figures in early October and Samsung Electronics' preliminary third-quarter results will serve as the first test of whether foreign investors return. The question is whether the market can go beyond confirming strong results to see upward revisions in next year's earnings outlook. Shinhan Securities found that companies whose operating profit beat estimates by more than 5% posted a median excess return of 1.62 percentage points against the KOSPI over the four weeks following their earnings announcements, while those that also saw their 12-month forward earnings per share estimates raised by more than 2% posted 3.33 percentage points. Roh Dong-gil, research fellow at Shinhan Securities, said, "What separated share prices more sharply afterward was not how strong the results were, but how much those results lifted the next round of profits."
Still, some observers said a shift to net buying by foreign investors could be delayed if U.S. rates keep climbing, even with improving earnings forecasts. Key questions are whether October's U.S. inflation and employment data ease concerns about further tightening, and whether companies maintain artificial intelligence investment despite high borrowing costs. Park Yeon-joo, head of the research center at Mirae Asset Securities, said, "We need confirmation that large-scale AI-related investment continues even in a high-rate environment." She added, "It is also important that the earnings strength of KOSPI companies, led by memory chips, remains solid."
