[Edaily Reporter Seong Ju-won] While the KOSPI has emerged as a powerhouse in global stock markets by posting its highest-ever year-to-date return, foreign investors continue to sell off shares, offloading tens of billions of dollars worth of stocks. CNBC reported on the 8th that experts analyzed that the essence of this selling pressure stems not from a lack of confidence in Korea’s economic fundamentals, but paradoxically from the market’s success itself.

The KOSPI plunged more than 8% in early trading that day. According to Korea Exchange data, as of noon that day, foreign investors had net sold 1.24 trillion won worth of KOSPI-listed stocks. Goldman Sachs estimated that as of the end of May, the cumulative net outflow of foreign capital from the KOSPI had reached approximately $62 billion (about 95.95 trillion won).
◇ "Forced Selling"... Caused by a Sharp Rise in Benchmark Weighting
The crux of the paradox lies in “weighting adjustments.” As the KOSPI surged, Korea’s weighting within global and emerging market (EM) benchmark indices rose sharply, forcing many active fund managers to reduce their holdings to meet portfolio limits.
Chetan Seth, an Asia-Pacific equity strategist at Nomura, said, “What we’re seeing from our investors and clients is essentially forced selling.” Nick Wilcox, Head of Asian Equities at Man Group, added, “A significant portion of the selling is forced selling as investors hit their active limits.” Wilcox noted that some investors are also running into regulatory limits on holdings of individual companies following the surge in large-cap stocks.
In a report dated the 5th, Goldman Sachs analysts stated, “Foreign investors are continuing to sell, focusing on KOSPI tech and auto stocks.”
◇Domestic Retail Investors Fill the Gap Left by Foreign Investors
Foreign selling is being offset by strong buying from domestic investors. Wilcox said, “Korean investors have sufficiently filled the gap left by foreign outflows,” estimating this year’s inflow of retail funds at approximately $70 billion (about 108.374 trillion won) and noting a surge in new securities account openings.
Nomura assessed that this phenomenon is similar to what has been observed in India in recent years. In India, a surge in domestic retail investors gradually pushed out foreign investors. Seth added, “The same trend could unfold in Korea,” noting that foreign investors may be waiting for a better entry point following the market correction.
◇Concerns Over Concentration on Samsung and SK Hynix… Fundamentals Remain Strong
Concerns are also being raised in the market that the KOSPI rally is overly reliant on #SamsungElectronics and #SKHynix, raising fears of risk concentration. Nevertheless, experts have not lost confidence in the fundamentals. Seth emphasized, “I don’t get the sense that investors have a negative view of Korea. This is just mechanical selling.”
Goldman Sachs also maintained its bullish stance, raising its 12-month KOSPI target to 12,000 points and projecting an additional upside potential of 37%.
The key issue is when foreign capital will return. Whether foreign investors will resume net buying once forced selling subsides and benchmark weight adjustments are completed, or whether the market structure will shift toward a structure centered on domestic retail investors—as seen in India—is expected to be a key variable for the KOSPI in the second half of the year.