November supply triggers in focus

Samsung Electronics, SK hynix earnings a wild card

ISM manufacturing index, PCE among key indicators to watch

The trading board at Hana Bank's headquarters in Jung-gu, Seoul, displays the Kospi and share prices of Samsung Electronics and SK hynix on Thursday. The Kospi opened down 5.59 percent from the previous session at 5,673.01. [Yonhap]
The trading board at Hana Bank's headquarters in Jung-gu, Seoul, displays the Kospi and share prices of Samsung Electronics and SK hynix on Thursday. The Kospi opened down 5.59 percent from the previous session at 5,673.01. [Yonhap]

Foreign investors have offloaded a record 205 trillion won ($153 billion) worth of Kospi shares since the start of the year, and the market is now watching closely for signs of when they might return. Securities firms say the US midterm elections and the anticipated initial public offering of US AI startup Anthropic could serve as key triggers for a foreign investor comeback.

According to Korea Exchange, foreign investors net sold 204.88 trillion won worth of Kospi shares through Wednesday, with the cumulative total surpassing 200 trillion won on a closing-price basis for the first time on Tuesday. The selling pressure continued to expand on Wednesday and again Thursday.

By comparison, retail investors net bought 100.17 trillion won and institutions net bought 39.06 trillion won through Wednesday — underscoring the overwhelming scale of foreign selling. The Kospi has traded below the 6,000 mark intraday on Tuesday, Wednesday and again Thursday, the first time it has fallen below that level since July 30.

Investor sentiment has soured as retail investors who bought near the peak are sitting on losses, and the buyback programs at Samsung Electronics and SK hynix — which had helped prop up the index — have wound down, widening the supply gap. Against this backdrop, a return of foreign buying has become more critical than ever.

Hyundai Motor Securities identified four key events that could mark a turning point for foreign investor flows: the aftermath of the US midterm elections on Nov. 3; the timing of a potential exit-strategy agreement between the United States and Iran; the period following Anthropic's IPO in mid-November; and the earnings release dates for Samsung Electronics and SK hynix at the end of this month.

"US equities tend to rebound starting about 20 days before midterm elections, and the Kospi typically follows suit — but this cycle carries far more noise than past midterms, including Middle East geopolitical risks, the possibility of a Democratic Party sweep of both chambers, and uncertainty from pre-election statements by Donald Trump," said Kim Jae-seung, a researcher at Hyundai Motor Securities. "We believe uncertainty will only ease once the midterms are over."

Kim also said expectations are running high for a dramatic US-Iran agreement just before the midterms. He flagged the timing of Anthropic's IPO — one of the largest global listings in recent memory — as another important variable.

"We are watching the period after Anthropic's IPO in mid-November," Kim said. "Before the listing, concerns about foreign capital outflows tied to the large IPO could intensify, but once it is complete, the supply overhang should ease and uncertainty around AI profitability should diminish, potentially boosting foreign investor sentiment."

On the earnings releases from Samsung Electronics and SK hynix, Kim said: "With doubts growing about the sustainability of memory chip profits, we are watching both companies' semiconductor supply outlooks and the competitive threat from China's CXMT. Additional shareholder return measures — such as announcements of further buyback programs — could also lift foreign investor sentiment."

Hana Securities took a different approach, analyzing three past Kospi bull markets — China's high-growth era in the 2000s, the post-global financial crisis recovery, and the COVID-era liquidity rebound — to identify indicators that moved ahead of foreign buying.

The indicators it flagged are the US Institute for Supply Management manufacturing index, the core personal consumption expenditures price index, and the spread between South Korean and US 10-year government bond yields. These indicators historically moved one month, five months and two months ahead of foreign buying, respectively — suggesting that a US economic recovery combined with easing inflation and interest rate pressures would increase the likelihood of foreign investors returning.

The exchange rate is another signal worth watching. Historically, foreign buying has tended to pick up about nine months after a period of won weakness. A weaker won raises the risk of currency losses for foreign investors in the short term, but it also lowers their entry cost in dollar terms and boosts the won-denominated earnings of export-oriented companies. Once the exchange rate stabilizes and profit improvements outpace cost increases, the incentive to re-enter the market could grow, analysts said.

"However, we would not expect buying based on a weaker exchange rate alone — we need to see won stabilization and an improvement in export earnings together," said Kim Du-eon, a researcher at Hana Securities.

Kim added: "The AI era represents an opportunity for South Korea, so investors should maintain core holdings in memory chips and power infrastructure, while any expansion of positions this month should be tied to foreign investor flow trends. When economic and financial conditions improve and price attractiveness based on earnings sustainability is confirmed, investors should raise their exposure in line with sustained net buying of physical shares."


jiyun@heraldcorp.com