Centered on a map of Korea, the flow of foreign selling is clashing with buying activity from retail investors and ETF-related funds. This week, the Korean stock market experienced a supply-demand collision characterized by foreign sell-offs and retail buying amid extreme concentration in semiconductors and credit overheating. [Photo=Hanmi Ilbo Graphic]

The core of capital circulation for the fourth week of June was the Korean stock market. While global markets as a whole were shaken, the volatility of Korea-related assets was significantly higher. The Korean ETF, EWY, plummeted 12.25% on the 24th, only to rebound by 2.63% on the 25th and 3.92% on the 26th. The KOSPI 200 overnight futures also slid to 1327.3 on the 24th before surging 5.58% to 1459 on the 25th. One day was panic selling, and the next was a technical rebound.

The checkpoint last week was the nature of the Korean beta. The key question was whether foreign capital was buying into Korea itself, or simply buying exposure to the semiconductors located within the Korean market.

The answer became clearer this week. Foreigners were not buying Korea indiscriminately. As the concentration in semiconductors intensified, they shed their broader Korean holdings as soon as profit-taking in the semiconductor sector began.

The name of this week’s capital circulation is ‘a collision between foreign selling and retail buying.’

Foreigners sold, and retail investors bought. Institutions have yet to regain clear leadership.

This volatility does not mean that the fundamentals of Korean companies collapsed and then recovered in a single day. The core issue was supply and demand. As sell orders concentrated on Samsung Electronics and SK Hynix, which account for more than half of the KOSPI market capitalization, the index as a whole was heavily shaken. Foreigners continued large-scale net selling in the spot market, while ETF-related funds, led by retail investors and financial investment firms, absorbed these sell-offs.

Retail investors' bargain hunting was the most distinct feature of the Korean stock market this week.

A pattern emerged where retail investors picked up whatever foreigners dumped. However, the nature of this buying needs to be scrutinized. If this is long-term cash-based capital, it acts as a floor supporting the market.

Conversely, if it is mixed with margin loans and leveraged funds, it becomes fuel that increases volatility. With the balance of margin loans ballooning to the 38 trillion won level, a decline triggers fears of forced liquidation, while a rebound stimulates further leveraged buying. This is why the Korean stock market saw both such sharp declines and strong rebounds this week.

Foreign selling cannot be simply interpreted as pessimism toward Korea. As Korea's weight in global portfolios increased due to the stock market's rise this year, there was an element of profit-taking and portfolio rebalancing.

However, if the weakness of the Korean won persists and the supply-demand imbalance toward the two semiconductor giants is not resolved, foreign selling will inevitably remain a short-term burden.

Added to this is the variable of the National Pension Service (NPS) rebalancing.

There is talk in the market regarding potential selling of domestic stocks following the end of the grace period. However, NPS selling is more about weight adjustment than a signal of exiting the market.

The pension fund operates on a structure where it sells off assets when their weight exceeds targets due to rising stock prices, and adds more when weights drop due to falling prices. This structure is exactly why the NPS has historically supported the market bottom during steep crashes.

However, short-term supply and demand are a different matter.

If fears of pension fund selling overlap with continued foreign selling, the upside of the index could be capped. Conversely, if retail inflows continue and the positive effects of Micron's performance translate into expectations for domestic semiconductor earnings, this correction could serve as an entry opportunity for waiting capital.

The question for this week is this:

“Is the extreme volatility of the Korean stock market a result of semiconductor revaluation, or the aftereffects of supply-demand overheating?”

The answer is both. The revaluation of the semiconductor sector, led by SK Hynix, is real. However, because this revaluation occurred too quickly and concentrated on too narrow a range of stocks, it led to a supply-demand overheat. The sharp decline and rebound of the Korean stock market this week were the result of both forces working simultaneously.

In one sentence: “The Korean stock market didn't collapse because money left the market; it was shaken because the direction of the money was too one-sided.”

The checkpoints for next week are fourfold.

First, we must confirm whether foreign net selling in the spot market is slowing down.

Second, we need to watch whether retail buying is accompanied by an expansion of margin loans or if it is shifting toward cash-based bargain hunting.

Third, it is important to see if the concerns regarding NPS rebalancing manifest as actual selling pressure.

Fourth, we must monitor the international investor's risk appetite for Korea through the correlated movements of EWY and the USD/KRW exchange rate.

※ This material is for reference regarding market trends and is not a recommendation to buy or sell any specific financial product.