On the 5th, the KOSPI and the KRW/USD exchange rate are displayed on the status board at the Hana Bank dealing room in Jung-gu, Seoul. On this day, the KOSPI plummeted, and the KRW/USD exchange rate closed the weekly trading session in the 1530 won range. [Photo=Yonhap News]  

The name of this week's trend is 'Conditional Return'.

Last week, the Capital Rotation Radar presented the following as observation points:

△ The actual net purchases of KOSPI large-cap stocks by foreign investors.

△ Whether the KRW/USD exchange rate stabilizes in the 1490 won range.

△ Whether the strength of Korean Exchange Traded Funds (ETFs) leads to demand and supply in the domestic spot market.

These were presented as observation points.

This week's market provided a partially positive answer to the first question and a reserved answer to the second and third questions.

The iShares MSCI South Korea ETF (EWY), a Korean ETF listed in the U.S., surged over 5% on the 2nd. This was a signal that foreign capital had not completely turned its back on the Korean market.

The KOSPI 200 overnight futures also recorded a gain of over 2% on the same day. This was a signal that foreign capital had not completely turned its back on the Korean market.

However, the issue was sustainability.

On the 5th, EWY fell over 4%. The KOSPI 200 overnight futures also turned bearish.

The strong rebound on the 2nd was closer to a short-term retracement combining expectations for Artificial Intelligence (AI) and semiconductors with futures and ETF supply and demand, rather than evidence of structural re-entry of funds into the Korean market.

There is one question regarding fund flows this week. 

"Has the Korean market become a 'must-buy market' again for foreign investors, or has it remained a 'market where they buy only when it moves and then exit'?"

The answer first came from the exchange rate.

The stabilization in the 1490 won range, which was an observation point last week, was not confirmed. The KRW/USD exchange rate surpassed the 1500 won level and rose to the 1560 won range. This is an environment where even if stock prices rise, exchange rate losses can increase from a foreign investor's perspective.

If the exchange rate is unstable, foreign capital cannot remain in the spot market for long. Foreign investors prioritize calculating hedging costs and currency loss risks over the valuation of the Korean stock market.

Global fund flows are also difficult to interpret as simple risk appetite.

On the 1st and 2nd, AI-related tech stocks led the market. Growth stock funds moved again, with Dell Technologies, Nvidia, Hewlett-Packard, and the software sector showing strength.

However, on the 4th and 5th, cracks appeared within tech stocks due to a combination of Middle East risks, rising interest rates, and the impact of Broadcom's earnings. Simultaneously, healthcare and financial stocks showed strength, indicating a rotation.

Three structures were confirmed in the market this week.

First, foreign interest in Korean assets remains alive.

The surge in EWY and the rebound in KOSPI 200 overnight futures show that the Korean market is perceived not as peripheral to the global AI and semiconductor cycle, but as a connected market.

Second, that interest is unlikely to turn into sustained investment without exchange rate stability.

The exchange rate in the 1550 won range does not immediately translate stock price rebounds in Korea into foreign investor returns. In a market where stock prices and exchange rates move in tandem, foreign buying also becomes tactical and quick.

Third, funds have begun to be more selective even within technology stocks.

Nvidia's expansion into AI PCs showed an expansion of AI demand, but the sharp decline in Broadcom and Micron Technology showed that there can be winners and losers within the AI infrastructure investment cycle.

The conclusion regarding fund flows this week is clear.

"Foreign investors have looked at Korea again, but they have not yet said they will stay in Korea."

The observation points for next week are threefold.

First, we need to confirm whether foreign capital will lead to renewed spot purchases of domestic semiconductors and large-cap stocks following the sharp decline in EWY.

Second, we need to see if the KRW/USD exchange rate stabilizes in the 1530 won range without further increases.

Third, we need to check if the trend of global rotation spreading to healthcare and finance leads to strength in defensive and financial stocks in the Korean market.

※ This article is a market commentary to aid understanding and is not investment advice. Actual market conditions and stock prices may vary depending on variables such as exchange rates, interest rates, oil prices, earnings, policies, and supply and demand.