Foreign investors are currently withdrawing significant capital from South Korea, prompting concerns among market observers. Recent transactions resulted in net sales of approximately $13.2 billion in Korean equities over just one week in mid-May. This massive pullout caused a 4% decline in the KOSPI index, and the trend of selling has continued unabated.
By late May, foreign outflows reached around 46.58 trillion won, equivalent to about $30.7 billion, with the pressure felt across the market, paying particular attention to key companies.
Why are semiconductors experiencing heightened foreign withdrawal?
The bulk of the selling activity is concentrated in South Korea's leading semiconductor firms, especially Samsung Electronics and SK Hynix. In one week alone, net sales from these two giants surpassed 10 trillion won, or approximately $6.6 billion. One contributing factor is profit-taking stemming from earlier artificial intelligence-driven market rallies, indicating that investors are reacting to prior gains in the tech space.
What triggered the recent downturn on the KOSPI?
On June 5, known in trading circles as "Black Friday," the KOSPI saw a sharp decline of more than 5%, closing around 8,160 points. This dramatic drop can be linked to both accelerating foreign withdrawals and the South Korean won plummeting to a 17-year low against the US dollar.
By early June, total foreign net selling on the KOSPI had surpassed 103 trillion won for the year, surpassing previous market crisis levels in South Korean history. The broader trend indicates that the total weekly foreign net selling peaked at 14.45 trillion won starting May 7. Several factors are at play, including rising US Treasury yields, adjustments for significant US market listings, profit-taking within the semiconductor sector, and escalating geopolitical tensions.
Are domestic retail investors making a difference?
In South Korea, individual retail investors are often referred to as "ants". These domestic investors have stepped in to offset some of the selling pressure created by foreign market exits, providing a supportive floor for prices that might have otherwise continued to decline.
In conclusion, while foreign capital is exiting South Korea at a troubling rate, the actions of local investors could play a crucial role in stabilizing the market in these uncertain times.