Foreign selloffs trigger tumbles in Kospi, Korean won

[Photo by Han Joo-hyung]

The South Korean financial market has been tumbling in the new year, with foreign investor sell-offs leading to an over 8 percent decline in the Kospi in 2024 to date.

On Wednesday, the Kospi closed at 2,435.90, reflecting a 2.47 percent drop from the previous trading day. The decline was primarily driven by foreign investors, with net sales of 902 billion won ($670 million). Institutional investors also contributed to the downturn, with a net sell-off of 11.3 billion won, while individuals made net purchases of 851.3 billion won. The Kosdaq also experienced a 2.55 percent drop.

Asian stock markets experienced a significant drop on Wednesday overall, amid the news that China recorded its lowest gross domestic production growth rate in 33 years, excluding the Covid-19 pandemic period.

Hong Kong’s stock market dropped by over 4 percent on the same day, with the Hang Seng Index falling 3 percent in the morning. The decline intensified in the afternoon, closing at 15,276.90, down 3.71 percent from the previous day and the Shanghai Stock Exchange Composite Index closed 2.1 percent lower at 2,833.62. The Nikkei Index experienced a modest 0.4 percent decline, while the Taiwan Stock Exchange Capitalization Weighted Stock Index also dropped by 1.1 percent.

“Asian stock markets appear to be undergoing arbitrage adjustments as 2023’s overheated expectations for a March U.S. interest rate cut are waning,” IBK Securities Co. head of research Lee Seung-hoon said, while quoting various other factors, including hawkish remarks from Federal Reserve officials and concerns about China’s economic slowdown, for the markets’ performance.

On the same day, the won-to-dollar exchange rate also sharply declined thanks to foreign investors’ selling pressure on the won. In the Seoul foreign exchange market, the Korean won against the U.S. dollar closed at 1,344.2 won, down by 12.4 won from the previous day, and the exchange rate re-entered the 1,340-won range in just two months.

Amid the market instability, investors are flocking to ultra-safe money market funds (MMF). The MMF market, predominantly fueled by corporate investor funds, topped the 200 trillion won mark for the first time in 11 months.