South Korea's equity market is approaching a critical juncture where multiple pillars of support are simultaneously weakening.
Retail investors have staged a mass exodus, institutional investors remain persistent net sellers, and the sole remaining source of buying power — corporate share buybacks from Samsung Electronics and SK Hynix — is projected to run out of ammunition by mid-October. This would leave the trajectory of the KOSPI almost entirely dependent on foreign capital flows and the trajectory of the Korean won.
In a report dated September 3, Goldman Sachs analyst Chris Cha highlighted that retail net buying in August plummeted by 90% month-on-month, falling from 54.5 trillion won in June to just 5.4 trillion won. This signals the near-complete dissipation of the retail momentum that had driven the KOSPI's robust first-half rally. Concurrently, both foreign investors and local institutions recorded net selling in August, leaving the market propped up almost solely by corporate buyback activity.
Goldman Sachs warns that at the current pace of execution, the buyback quotas for Samsung Electronics and SK Hynix will be exhausted between late September and mid-October — well ahead of their official November deadlines. Once this artificial support disappears, the market's support mechanism will shift back to regular institutional flows, which remain notably absent at current valuations. The firm advises investors to position themselves in advance for a potential liquidity shock in October.
Retail Retreat Signals End of Buying Momentum
The Korean retail investor base, once the most critical driver of the KOSPI's first-half ascent, is undergoing a fundamental behavioural shift. Goldman Sachs data shows net buying activity contracted sharply in August, dropping 90% from its June peak of 54.5 trillion won to just 5.4 trillion won.
The firm attributes this transformation to three key factors. On a behavioural level, retail investors have pivoted from their previous aggressive buy-the-dip approach to a conservative strategy focused on loss avoidance and selling into rallies. Regarding trading ranges, Goldman has observed that systematic retail buying activity is concentrated below the KOSPI 6500 level, while any attempt by the index to break through 7000 triggers rapid profit-taking and position unwinding, creating a clear ceiling effect. On the liquidity front, margin balances in brokerage accounts have remained below 100 trillion won for over a week, suggesting retail investors' deployable cash is drying up.
Adding to the caution, fixed deposit balances at South Korea's top five commercial banks surpassed 1000 trillion won for the first time ever, with 55.83 trillion won flowing in during July and August combined. This signals a clear shift of funds toward safe-haven assets. Furthermore, the leveraged ETF boom that previously attracted significant retail participation has abruptly ended. Regulatory requirements mandating a five-hour online course for leveraged trading eligibility have filtered out many momentum chasers, causing the leveraged ETF bubble to burst.
Corporate Buybacks: The Last Line of Defence Facing a Closing Window
Against the backdrop of net selling by retail, foreign, and local institutional investors in August, the sole net buyer was categorised under "other corporations" — predominantly the buyback activity of Samsung Electronics and SK Hynix. Goldman Sachs data reveals that on a recent trading day, the combined buybacks from these two companies contributed roughly $1.2 billion in net buying, accounting for over 98% of the total inflows into that category, and have maintained net buying for 12 consecutive sessions. This sustained buyback support has prevented a more severe decline in the KOSPI amid broad-based selling pressure.
However, this support mechanism has a clear expiry date. The official buyback execution windows for Samsung Electronics and SK Hynix end on November 21 and November 19, respectively. Yet, by tracking execution speeds, Goldman Sachs has found that due to front-loaded execution strategies, the buyback funds will likely be depleted between late September and mid-October — roughly a month ahead of the official deadlines.
Goldman warns that once this support dissipates, the market's secondary support will revert to regular institutional flows, which show insufficient willingness to participate at current levels. This could leave the KOSPI exposed to a significant liquidity vacuum.
Foreign Flows and the Won: The Core Variables for H2 Performance
Goldman Sachs asserts that with retail buying power exhausted and the corporate buyback window nearing closure, foreign net inflows have become the most critical structural variable for the KOSPI's second-half performance. Recent trends show some moderation in foreign selling pressure. In May and June, foreign investors recorded net selling of 447 billion won and 486 billion won, respectively. This narrowed to approximately 99 billion won and 100 billion won in July and August, signalling a marked reduction in selling momentum.
The currency environment has also turned more favourable. The Korean won has appreciated 12.9% from its mid-year low, with the dollar-won rate falling from 1561.50 to 1359.15. While the short-term correlation between the dollar-won rate and the KOSPI has shown some divergence, Goldman believes a stronger won overall provides more favourable currency conditions for global asset reallocation into Korean equities.
Based on this analysis, Goldman Sachs has outlined three execution strategies: reducing positions into strength around the KOSPI 7000 level, where retail breakeven selling pressure is expected to form significant resistance; positioning for increased volatility following the October buyback conclusion; and closely monitoring foreign capital rotation into semiconductor leaders to capture the structural opportunities presented by won appreciation and stabilising foreign net selling trends.
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