Foreign investors are continuing their retreat from the South Korean stock market even as it reaches new peaks, driven by domestic inflows and enthusiasm surrounding artificial intelligence (AI).
According to compiled data, overseas investors have been net sellers of South Korean stocks to the tune of $11.5 billion so far in May. This follows unprecedented selling in February and March and is on track to become the third-largest monthly sell-off on record.
Local retail investors, who largely missed out on last year's rally, are now entering the market, helping to extend the gains of the benchmark KOSPI index, which has risen 8.7% this year and outperformed all other major global indices tracked by Bloomberg. Korean institutional investors have also been net buyers.
"Foreign investors can be quite fickle, especially fast-money players like hedge funds, but domestic investors can serve as a more stable anchor for now," said Vey-Sern Ling, Managing Director at Union Bancaire Privée (UBP). He noted that strong performances from memory chipmakers Samsung Electronics and SK Hynix have been key factors attracting local investment.
Year-to-date, foreign capital outflows from South Korean equities have approached $48 billion, with the annual total expected to set a new record. This figure is more than double the amount of foreign selling seen in Indian stocks, a market with a far less direct connection to the AI trade than South Korea.
As foreign investors exit the Seoul market, debate is intensifying among investors over whether memory chip stocks have truly entered a "super cycle" or if they will revert to their typical boom-and-bust patterns. Valuation does not appear to be the primary concern, as the KOSPI index trades at a forward price-to-earnings ratio of approximately 8.5, compared to around 21 for the S&P 500 index.
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