Foreign investors' sixth month of net selling deepens liquidity gap in Korean stock market

Foreign investors have been net selling stocks for six consecutive months, deepening the 'liquidity gap' as money drains out of the Korean stock market. As a result, trading value—a measure of market activity—has shrunk, leaving the market quiet.

According to the Korea Exchange on Nov. 5, the average daily trading value of the KOSPI in October was 20.365 trillion won, the lowest level this year. Trading value has declined for five straight months, down 80.82% from the all-time high of 106.2 trillion won recorded in May. The monthly trend shows a steep decline: 50.3471 trillion won in June, 36.8754 trillion won in July, 25.8460 trillion won in August, and 21.3604 trillion won in September, before slipping into the 20-trillion-won range in October.

The KOSPI has been moving sideways within a highly volatile range. The KOSPI closed at 5,683.80 the previous day, down 37.64% from the record closing high of 9,114.55 set on June 22.

At the heart of the index's weakness lies the withdrawal of foreign capital. Foreign investors posted net selling for six consecutive months from May through October. With the inflow of new funds cut off, KOSPI liquidity has shrunk, limiting the index's rebound.

The money that has turned its back on the Korean market is flowing across the Pacific to US stocks. Domestic investors have net-bought US stocks for five consecutive months starting in June. October's net buying totaled $542.312 million (about 7.2 trillion won), the largest monthly figure this year. On the same day, the S&P 500 closed at 7,688.62, up 119.70 points (1.58%).

Political uncertainty has eased somewhat with the conclusion of the US midterm elections. Han Ji-young, a researcher at Kiwoom Securities, diagnosed that "even if a short-term rebound appears after the election, its sustainability depends on whether unease in the AI industry subsides and geopolitical risks are resolved." The industry believes that, amid concerns over high inflation and high interest rates, it will take time for the Korean market's index to recover and trading value to normalize.