As the exchange rate approached 1,400 won and foreign investors continued to sell, the share of the market capitalization of KOSPI stocks held by foreign investors fell to the lowest level since July 2009.



According to the Korea Exchange, as of September 15, the total market capitalization of the stock market was 1,892 trillion won, of which the market cap of foreign stocks was 575 trillion won.


30% collapse?


Based on the market capitalization, the proportion of stocks held by foreigners is 30.39%.



This is the lowest level in about 13 years and 2 months since 30.37% on July 27, 2009.



The proportion of foreign investors in the KOSPI reached 40% in early 2020, but has since gradually decreased to 36.50% at the end of 2020 and 33.55% at the end of 2021.



This year, it increased to 34.20% on January 25, ahead of the listing of LG Energy Solution, and then gradually decreased to the 30% level.



If the 30% level collapses, it is the first time since the 29.92% mark on July 13, 2009.


Strong Dollar, Inflation and Recession


The decline in foreign market capitalization is due to the recent increase in the won/dollar exchange rate due to the strong dollar.



In addition, the weakening of global risky asset investment sentiment in emerging markets due to high inflation pressure and the burden of austerity is further fueling the outflow of foreign funds.



Foreigners showed a buying advantage in July and August in the securities market despite adverse conditions such as a weak won and an inversion of Korea-US interest rates, but eventually turned to a selling advantage in September.


The increase in the exchange rate and the slowdown in exports


At the beginning of this month, the won/dollar exchange rate broke through 1,360 won for the first time in 13 years and 4 months, and has risen to 1,400 won in about two weeks.



The sharp rise in the won/dollar exchange rate acts as a bad news for foreign supply and demand, dragging down stock prices, leading to a vicious cycle that leads to a sharp rise in the exchange rate.



The KOSPI, which recovered the 2,500 level in August, was pushed below the 2,400 level again due to the recent sell-off by foreigners, returning the gains from the 'bear market rally (short-term rebound in a bear market)' since early July.



“The KRW/dollar exchange rate and foreign supply and demand of the KOSPI generally show a negative correlation coefficient,” said Roh Noh-gil, a researcher at Shinhan Investment Corp. explained.



He added, "If the exchange rate rises as a result of the export slowdown, it may cause foreign net selling in terms of fundamentals." .