Foreign Investors Sell Heavily on KOSPI, but Market Is Probing Direction Within Range, Not Pricing a Decline

Recent supply and demand in Korean equities has looked different on the KOSPI and the KOSDAQ. On the KOSDAQ, foreign and institutional investors are buying and flowing in, but on the KOSPI their large sell-offs stand out. In particular, foreign investors recorded sell volume of nearly 2 trillion won on the KOSPI, a large enough amount to weigh on the market.

Foreign investors appear to be trading on the direction the market shows while moving within a range over the short term. This looks less like a sell-off premised on a major drop and more like a strategic move to look for opportunities within a given band.

In semiconductors, the moves of the large-cap so-called "two leaders" have a major influence on the share-price trajectory of materials, parts, and equipment (sobujang) stocks. When the two leaders rally sharply or drop sharply, the sobujang names tend to stall relatively. Conversely, when the two leaders move steadily within a stable range, the sobujang stocks are more likely to strengthen.

Even as the index falls, a tendency is observed for foreign investors, while selling strongly, to buy some financial stocks. This can be interpreted as foreign investors betting on a market decline within the overall supply and demand picture. This is because financial stocks are often less affected by market volatility or take on a defensive character in falling markets.

A change in foreign investors' investment stance is detected. They expect the index to move within a range and are increasing their weighting from large-cap-centered investing, known as the 'top two,' toward value stocks. This shift serves as grounds for judging that there is no need to be greatly concerned about a large overall market decline. Rather than simply betting on a market decline, foreign investors are adjusting their portfolios to find new opportunities within the market's sideways flow.

Korea's solar energy market has high growth potential. At present, solar energy accounts for only about 10% of domestic renewable energy demand. This is considerably lower than the global average renewable energy share of 30%. Accordingly, investment in renewable energy, including solar, is expected to have significant room to expand in Korea going forward. The low current share is a positive signal, as it implies that rapid growth is possible through future investment and expansion. Such a market environment could bring substantial benefits to related companies.