Foreign investors' relentless net buying spree on KOSPI is driving the index to new year highs. Foreign investment banks are raising their KOSPI targets to 4000-5000, noting the potential for structural changes in the South Korean stock market. In contrast, individual investors are taking short-term profits, showing a divergent trend from foreigners.
On the 24th, the KOSPI index once again broke its year high, reaching an intraday high of 3237.97, buoyed by strong buying from foreign investors. This surpassed the previous year high of 3220.27. As of 11:08 AM on this day, KOSPI was trading at 3210.21, up 0.83% from the previous day. However, the upward momentum narrowed somewhat during the day after news that the '2+2 Trade Talks' between the South Korean and U.S. financial and trade chiefs, originally scheduled for July 25th in Washington D.C., had been postponed.
Foreigners on a 6.3 Trillion Won 'Buy' Spree… Individual Investors 'Sell'
On the KOSPI market, foreigners and institutions net bought 573.7 billion won and 281.9 billion won, respectively, driving the index's rise. In contrast, individual investors net sold 878.8 billion won, moving to realize profits.
According to data from the Korea Exchange, from June 4th, the day after the early presidential election, until the 23rd, foreigners net bought 5.8239 trillion won in the KOSPI market. Including the buying amount as of this morning, the total foreign net buying reached approximately 6.398 trillion won. During the same period, individual investors net sold 4.4123 trillion won, and including the intraday selling on this day, their cumulative net selling is estimated at approximately 5.2911 trillion won. Institutions are in a net selling position of 1.6097 trillion won, including their transactions today.
Foreign investors' buying spree is not merely a short-term movement but is interpreted as an anticipation of potential structural changes in the Korean stock market. There is also an analysis that the weakening dollar due to the U.S. fiscal deficit has positively influenced the inflow of foreign capital. A weaker dollar can make investing in South Korean stocks more attractive to foreign investors.
Foreign Firms Say "KOSPI to 4000-5000"… Focusing on Structural Changes
Major foreign investment banks are currently viewing the upward trend in the South Korean stock market not as a short-term rebound but as a structural shift, and have raised their KOSPI targets.
Nomura Financial Investment recently presented a positive outlook for the South Korean stock market, setting its 12-month KOSPI target at 4000 in a recent report.
JP Morgan predicts that KOSPI could reach the 5000 level within two years if corporate governance reforms in South Korea become visible. This reflects expectations that increased transparency and shareholder-friendly policies of South Korean companies will further improve investor sentiment.
Morgan Stanley and Goldman Sachs are also maintaining a positive view, analyzing that the South Korean stock market is currently undergoing a structural revaluation opportunity.
These foreign institutions perceive the South Korean government's policies, such as improving corporate governance, expanding shareholder returns, and re-attempting MSCI Developed Market Index inclusion, as concrete policy changes. They expect these policy efforts to resolve the undervaluation factors of the South Korean stock market and increase the trust of global investors. In particular, MSCI Developed Market Index inclusion is considered a crucial event that could further accelerate foreign capital inflow.
Concerns over Downward Revision of Earnings Estimates… Differentiated Strategy Needed
As foreign net buying is expected to continue for the time being, the mid-to-long-term direction of the South Korean stock market is projected to be positive. Shinhan Investment & Securities analyzed that this year's rally in the South Korean stock market is closely related to global liquidity conditions, such as a weaker dollar. This suggests that the tendency for investment capital to flow into emerging markets is strengthening due to expanding global liquidity.
However, caution is building regarding corporate earnings. Shinhan Investment & Securities analyzed that while KOSPI companies' Q1 earnings exceeded market expectations thanks to strong performance in the semiconductor and non-ferrous metals sectors, a general downward revision of earnings consensus is continuing from Q2 due to the sluggish performance of Samsung Electronics, advising a conservative approach.
Lee Jung-bin, a researcher at Shinhan Investment & Securities, pointed out, "Although the KOSPI net profit level is sound, if future earnings announcements fall short of expectations, a downward adjustment of expectations is inevitable." He emphasized that even during the Q2 earnings season, a differentiated strategy is needed, focusing on sectors with sustained earnings momentum such as semiconductors and non-ferrous metals. This suggests that certain sectors may continue to show strength despite overall earnings sluggishness.
Overall, the strong buying by foreign investors and the positive outlooks from foreign investment banks demonstrate the long-term growth potential of the South Korean stock market. However, in the short term, volatility may increase due to corporate earnings announcements, requiring cautious approaches and selective investments by sector from investors.
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