Foreign investors in Korean stocks shifted to net selling during the May 24 opening session after purchasing 5.57 trillion won across four consecutive trading days from May 20 to May 23. As of 9:50am on May 24, foreigners net sold 846.3 billion won on the KOSPI while the index traded at 6854.73, down 3.41% from the previous close. The reversal follows a pattern analysts compare to the 2004 China Shock and 2009 Dubai Shock, where short-term oversold conditions triggered bargain hunting before markets stabilized. Year-to-date through May 23, foreign investors have net sold 154.8 trillion won on the KOSPI, the largest outflow since the 2008 financial crisis, while retail investors absorbed 104.7 trillion won of the selling pressure.
KOSPI Posts 3.41% Decline as Foreign Investors Resume Selling
The KOSPI opened at 7000.78 on May 24, down 1.35% from the previous trading day, before declining further to 6854.73 by 9:50am, representing a 3.41% drop. The KOSDAQ fell 3.00% to 766.58 during the same timeframe. Institutional investors joined the selling, offloading 338.1 billion won, while retail investors net purchased 1.19 trillion won.
Over the four-day buying period from May 20 to May 23, foreign investors purchased 519.8 billion won, 295.2 billion won, 2.62 trillion won, and 2.14 trillion won respectively, totaling 5.57 trillion won. For the month through May 23, foreigners have net sold 6.53 trillion won on the KOSPI, while retail investors net bought 5.58 trillion won.
Analysts Cite Historical Oversold Patterns from 2004 and 2009 Crises
Hana Securities noted that the recent KOSPI decline resembles patterns observed during the 2004 China Shock and 2009 Dubai Shock. The firm referenced historical cases where foreign buying and retail selling converged after sharp drops, leading to index rebounds. Hana Securities stated that sustained foreign buying could support expected returns of 15-25% over a one-year horizon from current levels.
IBK Investment & Securities reported that the 60-day net selling amount divided by current market capitalization has fallen to -2%, a level last seen during extreme short-term overselling periods in August 2007, January and October 2008, and May 2020. Following those episodes, foreign selling pressure eased within 1-3 months and markets rebounded.
Byun Jun-ho, researcher at IBK Investment & Securities, stated that since 2000, the KOSPI has experienced monthly double-digit percentage declines only 17 times, representing approximately 5% of all periods. Byun noted that the KOSPI's 20-day and 60-day deviation ratios and valuation metrics are at empirically observed bottom ranges.
FAQ
What did foreign investors do on the KOSPI from May 20 to May 23?
Foreign investors net purchased 5.57 trillion won on the KOSPI across four consecutive trading days from May 20 to May 23, with daily amounts of 519.8 billion won, 295.2 billion won, 2.62 trillion won, and 2.14 trillion won respectively.
Why do analysts compare the current KOSPI situation to the 2004 China Shock and 2009 Dubai Shock?
Analysts from Hana Securities and IBK Investment & Securities cite pattern similarities where short-term oversold conditions triggered foreign bargain hunting, followed by market stabilization and rebounds after foreign selling pressure eased within 1-3 months of extreme overselling levels.
