Global investors engaged in a record-setting sell-off of South Korean equities on Friday, capitalizing on gains after the market's nearly 50% surge this year. According to data from the Korea Exchange, foreign funds were net sellers of 6.8 trillion won (approximately $4.7 billion) worth of stocks comprising the benchmark Kospi index during the regular trading session. This marked the largest single-day net selling volume in history. The sell-off pressured the Kospi index, which closed 1% lower, ending a six-day consecutive winning streak. In contrast, domestic institutional and retail investors were net buyers during the session. This wave of selling follows a period of exceptional market strength. Since its low point in April of last year, the Kospi has skyrocketed approximately 170%, significantly outperforming other major global markets. This week, the index surpassed the 6,000-point milestone, and the total market capitalization of South Korean stocks briefly exceeded the combined value of the German and French markets. This rapid ascent triggered unusual trading activity and price volatility in overseas-listed ETFs focused on South Korea. Kim Namho, a fund manager at Seoul-based Timefolio Investment Management, stated that the pullback was primarily triggered by a combination of month-end benchmark rebalancing and profit-taking following the sharp rally. He further noted, "The prevailing market view is that South Korean stocks remain undervalued, suggesting ample room for further gains after this period of consolidation."
Memory Boom Fuels South Korea's Market Outperformance The current bull run in South Korean equities is largely driven by explosive global demand for memory chips. As the primary listing venue for giants like Samsung Electronics and SK Hynix, South Korea is a direct beneficiary of this memory chip upcycle. Even as "fear-of-missing-out" trading in artificial intelligence-related assets pressured other regional markets, South Korean stocks have generally maintained their strength. The Kospi's breach of the 6,000-point level this week occurred just about a month after President Lee Jae-myung set 5,000 points as a political target, a pace that far exceeded market expectations. The milestone of South Korea's stock market capitalization surpassing that of major European economies Germany and France further accelerated inflows from international investors. Intense overseas demand for exposure to South Korean assets led to abnormally high trading volumes and price dislocations in some Korea-focused ETFs listed abroad.
Month-End Rebalancing and Profit-Taking Converge, Sparking Record Sell-Off Analysts suggest that this large-scale divestment by foreign investors is not a signal of a trend reversal but rather reflects technical adjustment pressures. Kim Namho pointed out that the confluence of mechanical month-end benchmark rebalancing and profit-taking actions following the rapid price appreciation within the same short timeframe amplified the scale of the day's selling. It is noteworthy that during the period of foreign net selling, domestic institutions and retail investors chose to buy on dips, partially absorbing the selling pressure and indicating a relatively optimistic domestic outlook on the market's future trajectory. Kim Namho added that the mainstream market consensus still views South Korean equities as undervalued, and the current adjustment does not alter the long-term upward rationale.
Comments