South Korea’s equity market has seen record foreign investor outflows this year, with overseas investors withdrawing roughly $110 billion year-to-date as they reduced exposure following the market’s rapid rally. The selling has left domestic retail investors absorbing most of the buying. After net purchasing 42.4 trillion won in June, retail investors have bought a further 13.2 trillion won of KOSPI stocks so far this month.
Bank of Korea data released on Tuesday showed foreign investors remained net sellers of South Korean stocks for a fifth straight month in June despite technology-led market gains. Non-residents sold $30.72 billion of Korean stocks and bonds in June, following net sales of $26.15 billion in May, and have remained net sellers since February. The central bank said concerns over overheating AI infrastructure investment and portfolio rebalancing after rising share prices reduced foreign equity holdings and accelerated capital outflows.
In a report dated July 14, the Bank of Korea also highlighted offshore non-deliverable forwards (NDFs) as a factor behind elevated won levels. Foreign investors’ average daily NDF turnover rose to $22.8 billion in the second quarter from $18.9 billion in the first quarter, accounting for 76% of the $30.0 billion daily domestic currency-hedging product volume. The bank said offshore NDF trading can transmit overnight market moves into the onshore market and warned that looser offshore regulation increases vulnerability to speculative shocks.
Retail investors have also faced heavy losses in leveraged semiconductor exchange-traded funds. Leveraged ETFs linked to Samsung Electronics and SK Hynix have fallen sharply since their end-May listings, with more than 10 funds now close to halving in value. The KODEX SK Hynix single-stock leveraged ETF, managing $3.4 billion in assets, has dropped about 45% since listing and more than 60% from its June peak. Jung In Yun, CEO of Fibonacci Asset Management, said many retail investors treated these ETFs as long-term investments, and the losses could reduce retail demand for semiconductor stocks.
Margin financing for KOSPI stocks stood at 280 trillion won as of July 14, down from a record 298 trillion won on June 24. Lyon Securities chief equity strategist Alexander Redman said South Korea remains the firm’s largest overweight market, although it has started trimming positions due to concerns that the market is becoming increasingly driven by retail investors using margin financing.
Separately, South Korea’s Lee urged the cabinet to raise the country’s potential growth rate to 3%, citing strong first-half export performance, particularly in semiconductors, and rising capital expenditure. He said several forecasts suggest real GDP could reach 3% this year and called for coordinated efforts to stabilise prices and the housing market while developing high-advantage growth engines, with the goal of making this year a turning point toward 3% potential growth, top-four trading nation status, and $50,000 per-capita income.
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