Foreigners offload S. Korean stocks but net purchase ETFs this month: KRX

Foreign investors were net sellers on South Korea’s stock markets this month, according to the Korea Exchange, while maintaining a net buying position in exchange-traded funds (ETFs). The data, released Sunday, highlights a shift in investment behavior amid increased market volatility. Through Thursday this month, foreigners sold a net 12.1 trillion won ($8.12 billion) on the main bourse and 338.1 billion won on the tech-heavy secondary market. The Korea Exchange noted that foreign investors were net sellers on the main bourse in eight of the 12 trading sessions, although the market remained closed on Friday for Constitution Day. In contrast, they purchased a net 593.7 billion won worth of ETFs, with net buying activity recorded in 10 of the 12 trading days. Among the most popular ETFs, KODEX Leverage stood out, tracking twice the daily performance of the benchmark Korea Composite Stock Price Index. It saw net purchases of 195 billion won, followed by KODEX 200, which tracked the main index and attracted 180.6 billion won in net inflows. These ETFs appear to have been favored by foreign investors seeking diversified exposure during periods of uncertainty. However, there was a notable exception in the case of single-stock leveraged ETFs. Foreigners were net sellers of these products, offloading 79 billion won worth of the SK hynix leveraged ETF managed by Samsung Asset Management Co., and 46.4 billion won of the corresponding product managed by Mirae Asset Global Investments Co. This suggests a preference for broader ETFs over more volatile, single-stock instruments. A market observer noted that foreign investors likely adjusted their portfolios by investing in different ETFs to mitigate risk rather than taking directional bets on the market. This strategy aligns with the broader trend of diversification in uncertain times. Earlier this week, the South Korean government introduced new regulations aimed at managing the risks associated with leveraged ETFs. The changes include increasing the minimum deposit required for single-stock leveraged ETFs from 10 million won to 30 million won. Additionally, investors will now be permitted to trade such ETFs in lots of 20 shares instead of the previous 10-share increments. These adjustments aim to enhance investor protection and stabilize market conditions. Market analysts suggest that the regulatory changes reflect growing concerns about the impact of leveraged ETFs on market stability. With heightened volatility affecting both equity markets and fixed-income sectors, policymakers are increasingly focused on balancing investor access with financial safeguards. As the month progresses, further insights into investor sentiment and market trends will be crucial. The interplay between traditional equities and ETFs continues to shape the landscape of South Korea’s capital markets, influenced by both domestic policy shifts and global economic dynamics. Investors remain watchful, adapting strategies in response to evolving conditions.