Foreigners, South Korea's stock market sparks a "semiconductor buying frenzy"... Stock holdings reach a 5-year high

As of the end of December last year, foreign investors held domestic stocks accounting for 32.9% of the total market capitalization, reaching the highest level in 5 years and 8 months. This is the highest level since the recovery from the COVID-19 pandemic shock in April 2020, indicating that foreign capital is actively flowing back into the Korean stock market.

The International Financial Center analysis states that due to a significant increase in net stock purchases by foreign investors in December, their shareholding ratio rose sharply from 29.6% in the previous month. Especially, concentrated buying of semiconductor stocks played a decisive role in this increase. SK Hynix and Samsung Electronics, with scales of 2.2 trillion KRW and 1.4 trillion KRW respectively, became the main targets of foreign investment, and the foreign ownership ratio of these stocks also increased slightly.

Analysts believe that multiple factors are working together behind this capital inflow. First, as supply shortages and price increase expectations in the memory semiconductor market intensify, the earnings outlook for related companies has attracted attention. For example, recently, Japan’s Nomura Securities raised its profit forecasts for Samsung Electronics and SK Hynix by 21.5% and 9.7% respectively, providing an optimistic outlook.

In addition, the “relative undervaluation” of the Korean stock market also makes it attractive from the perspective of foreign investors. The valuation of the Taiwanese stock market has exceeded its historical average, while Korea still maintains a relatively low P/E ratio, offering relative gains. In fact, in December last year, while foreign investors sold Taiwanese stocks, they flowed funds into Korean stocks.

Foreign capital was active not only in the stock market but also in the bond market. In December last year, foreign investors net invested 8.8 trillion KRW in bonds, increasing their holdings by about 10 trillion KRW from the end of November to reach 339.3 trillion KRW. This capital inflow is considered to be driven by the attractiveness of arbitrage opportunities such as interest rate levels and exchange rate gains.

Overall, recent foreign investment is refocusing on the domestic market based on preferences for semiconductor-centered industries, policy expectations, and global valuation assessments. However, the International Financial Center also warns that due to global variables such as concerns over a bubble in AI-related technology stocks, foreign capital flows could experience significant short-term fluctuations. This trend may serve as an opportunity for future reforms of the domestic capital market structure and for strengthening stock market stability, but the risk of capital outflows caused by external shocks still exists, requiring flexible response measures.