The head of the Korea Exchange has stated that foreign selling of Korean stocks does not indicate a loss of confidence in the country's market.
In an interview with CNBC, Korea Exchange (KRX) Chairman Jeong Eun-bo attributed the market's severe volatility to a combination of external factors, including the Iran conflict and the inherent high volatility of the semiconductor sector.
Chairman Jeong also expressed optimism about the market's future upside, expressing confidence in the higher index targets set by major investment banks.
In the interview with CNBC's Lisa Kim, Jeong explained that the significant gains in the Korean stock market from 2025 through the first half of this year naturally led foreign institutions to rebalance their portfolios.
He noted that the KOSPI index surged 76% in 2025 and was up as much as 108.85% year-to-date before the current downturn began on June 3rd. This meant the weighting of Korean assets in global portfolios had nearly doubled or even tripled in some cases.
"Overseas institutional investors have fixed asset allocation ratios... so portfolio rebalancing was inevitable, leading them to reduce holdings of Korean stocks during this process," Jeong said.
After hitting a record high on June 2nd, the KOSPI plunged more than 13% over just six trading days.
Jeong stated that after communicating with major overseas institutional investors, "everyone gave the same answer: this sell-off is purely a portfolio rebalancing operation and has nothing to do with a negative view of the Korean market."
He believes the rebalancing process for large foreign institutions is nearing its end.
Data from the Korea Exchange showed that as of 11 a.m. Singapore time on Monday, foreign investors were net sellers of KOSPI component stocks to the tune of 1.24 trillion won (approximately $801 million) for the day.
The index plummeted over 8% that day, triggering a market circuit breaker.
Analysts at Goldman Sachs estimated in a June 5th report that foreign net outflows from the KOSPI had reached about $62 billion year-to-date through the end of May.
The persistent foreign selling pressured the Korean won, which fell to a 17-year low against the U.S. dollar at 1,561.5 won on June 5th.
Jeong noted that the won is not a global reserve currency but a regional one, making it more vulnerable to capital outflows. However, he said Korean regulators have "taken proactive steps to smooth excessive volatility in the exchange rate."
"Once the foreign exchange market pressure from this rebalancing is digested, the exchange rate is highly likely to stabilize," he added.
Reasons for Market Volatility
The Korea Exchange chairman analyzed that multiple factors have intensified market swings: geopolitical conflict in the Middle East, the Korean economy's high dependence on the external environment, and the high-volatility nature of the semiconductor industry that underpins the stock market.
The recent KOSPI rally was heavily concentrated in just two companies, Samsung Electronics and SK Hynix, core leaders in the semiconductor sector that together account for about 45% of the index.
Jeong pointed out that the strong cyclicality of the semiconductor industry further amplifies stock market fluctuations.
The global chip industry consistently cycles through boom and bust periods: building capacity takes years, but technological shifts can cause chip demand to surge or shrink rapidly, creating severe cyclical volatility due to supply-demand mismatches.
Jeong also offered reassurance to investors: "As global markets are experiencing heightened volatility in sync, we will prudently evaluate and recalibrate market limits and circuit breaker thresholds."
Several international investment banks have raised their KOSPI target levels. Goldman Sachs, for instance, lifted its 12-month target for the index from 9,000 to 12,000 points on June 5th.
Jeong stated, "The global market has recognized Korea's significant upside potential. I am confident the stock market still has ample room to rise."
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