Foreign investors dump Korean stocks, but their holdings at record high

Foreign investors have dumped more than 90 trillion won ($59.6 billion) worth of Korean stocks this year, yet foreign ownership by market capitalization has paradoxically climbed to a record high as they concentrate holdings in booming artificial intelligence and semiconductor shares.

Foreign investors net sold a combined 91.13  trillion won on the benchmark Kospi market from the start of the year through Tuesday, according to the Korea Exchange and Yonhap Infomax Wednesday.

In particular, after the Kospi surpassed the 7,000-point mark on May 7,  foreigners unloaded more than 41 trillion won over nine consecutive trading sessions, adding to market volatility.

Despite the heavy selling, foreign ownership rose. Foreign stockholdings rose to 39.43 percent of the total Kospi market capitalization as of Tuesday, up 3.15 percentage points from end of last year. 

“Despite massive net selling, foreigners maintained ownership in key market leaders such as AI and memory semiconductor stocks, and the sharp rally in those shares boosted the value of their holdings,” said Kim Seok-hwan, a researcher at Mirae Asset Securities.

In other words, foreigners didn't leave the Korean market entirely. They instead streamlined portfolios by selling relatively less profitable stocks and concentrated holdings in strong outperformers such as Samsung Electronics and SK hynix.

“Foreign investors are effectively allowing their holdings in Korean equities to increase,” said Lee Kyung-soo, an analyst at Hana Securities. “Foreign ownership ratios have climbed to record highs.”

“If foreign investors had tried to maintain ownership ratios at the levels seen at the beginning of the year, net selling this year should have reached around 230 trillion won,” Lee added, noting that the current scale of selling alone does not fully explain the shift.

Still, some warn that the rally, largely driven by retail investors, may be difficult to sustain over the long term.

Retail investors are currently absorbing most of the foreign selling through direct stock purchases and exchange-traded funds, supporting the market’s rise. However, concerns remain that heavy reliance on leverage, including margin loans, could amplify losses if the market corrects.

Experts say that stabilizing the market going forward will require a meaningful return of buying by foreign and institutional investors, earnings improvements across sectors beyond semiconductors and reduced volatility.

Meanwhile, some analysts expect foreign fund flows could begin to shift as early as later this month.

“Korea’s weighting in the MSCI Emerging Markets Index rose sharply to 21.7 percent from 15.4 percent in MSCI’s May review, creating additional incentives for passive fund inflows, and Korea is also expected to have a 60 percent chance of a positive outcome in the MSCI developed market index review scheduled for mid-June,” analyst Lee told Yonhap News Agency.

This article was originally written in Korean and translated by a bilingual reporter with the help of generative AI tools. It was then edited by a native English-speaking editor. All AI-assisted translations are reviewed and refined by our newsroom.

BY JEONG JAE-HONG [kim.jiye@joongang.co.kr]