Foreign investors have kept selling South Korean stocks with little sign of relief, but a cluster of events from late this month through mid-November could mark a turning point for their return, according to a brokerage report. Earnings from the country's two largest chipmakers, the U.S. midterm elections, shifts in the Middle East and the listing of artificial intelligence firm Anthropic are cited as the variables that could reverse sentiment.
Foreign investors sold a net 203.6977 trillion won ($141.5 billion) on the main KOSPI market this year through the previous session, according to the Korea Exchange on the 14th. Of that, about 176 trillion won came from just two stocks, Samsung Electronics (005930.KS) and SK hynix (000660.KS), accounting for roughly 86% of the total. Foreign ownership of Samsung Electronics has fallen to its lowest level in 18 years, since 2008, while SK hynix also slipped below its 10-year average.
The exodus has been a major driver of the KOSPI's decline. Geopolitical risk in the Middle East has intensified, compounded by a dispute over OpenAI's annual recurring revenue and wariness about the strengthening competitiveness of China's ChangXin Memory Technologies, or CXMT. The KOSPI fell as low as 5,911.11 points during trading on the 13th, dropping below the 6,000 mark for the first time since July 31.
There is no obvious buyer to fill the gap. Retail net buying was concentrated in the 7,000 to 8,500 range on the KOSPI, leaving individual investors with heavier losses as the index fell. Even their spare cash is shifting into interest-bearing products and U.S. equities. Share buybacks by Samsung Electronics and SK hynix, which had propped up the market, are also entering their final stage.
That has prompted analysts to focus on gauging when foreign money might return. Kim Jae-seung, an analyst at Hyundai Motor Securities (001500.KS), said in a report that day, "With the KOSPI having fallen to the 6,000 level, this is a time to think about what trigger will bring foreign investors back, rather than to look for reasons behind their net selling." He pointed to four variables that could shift foreign flows.
The first is the U.S. midterm elections on Nov. 3. U.S. stocks have typically rebounded starting about 20 days before midterm elections, but this time the Middle East conflict, the possibility of Democrats taking both chambers of Congress and remarks by U.S. President Donald Trump have added to uncertainty, according to the report. Once the elections are over and political uncertainty eases, foreign investors' appetite for risk assets could recover, it said.
Talks between the U.S. and Iran are another variable. Hyundai Motor Securities judged that Iran's bargaining power will peak before the U.S. midterm elections, which is why it sees a strong chance of a dramatic agreement between the two countries just ahead of the vote. If an exit strategy to end the armed conflict emerges, the geopolitical risk weighing on the Korean market could also ease.
Anthropic's initial public offering, targeted for mid-November, is another event to watch. Hyundai Motor Securities pointed to June of this year, when large U.S. technology stocks and the KOSPI corrected together ahead of SpaceX's listing. Concerns about large-scale capital outflows could weigh on the market before Anthropic's debut as well. After the listing, however, supply-demand pressure could ease and uncertainty over the profitability of AI companies could diminish, the brokerage said.
Earnings from Samsung Electronics and SK hynix late this month are seen as a variable that could hasten the return of foreign investors. With growing doubts over whether memory chip profit growth can continue, the chip supply-demand outlook the two companies present and their assessment of China's CXMT will be important, according to the report. Additional shareholder returns, such as further share buybacks, could also help improve sentiment.
Still, the brokerage said foreign selling is unlikely to reverse in a short period. Gradual improvement in flows can be expected as the market works through the calendar, beginning with the chip earnings late this month and continuing through the U.S. midterm elections and Anthropic's listing. "There is no big event in sight that would immediately turn around foreign net selling," Kim said. "It is important not to be overwhelmed by fear and to wait for the point of change."
