Foreign investors sold off South Korean stocks and bonds in December, leading to an outflow of about $4.2 billion. This marks the largest capital flight since March 2020, when the COVID-19 pandemic sent shockwaves through financial markets.
Since the summer of 2024, S. Korean stocks have been steadily sold off by foreign investors, reflecting a persistent “sell Korea” trend. While the bond market had previously benefited from foreign inflows, it too experienced net outflows in December. This marked the first time in over a year, since October 2023, that foreign investors simultaneously withdrew from both stocks and bonds.
According to a report on international financial and foreign exchange market trends released by the Bank of Korea on Jan. 15, foreign investments in S. Korean securities recorded a net outflow of $3.86 billion in December. A net outflow means that more funds left the market than were invested. Using the end-of-December exchange rate of 1,472.5 won to the dollar, the amount translates to approximately 5.68 trillion won. This represents the largest outflow since March 2020, when $7.37 billion exited the market.
The substantial outflows in December were driven by withdrawals from both the stock and bond markets. Foreign stock investment had already been in a net outflow since August, totaling around $17 billion over the last five months of 2024. Although bond investments had seen steady inflows from August through November, December marked a reversal, with bond outflows reaching $1.28 billion.
This is the first time since March 2024, when $3.39 billion exited the bond market, that foreign capital has been pulled from bonds. A significant portion of these outflows involved government bonds, often considered a “safe bet.” The Ministry of Economy and Finance reported that foreign holdings of S. Korean government bonds declined by approximately $2 billion in December.
Analysts suggest this trend may persist. In the futures market, which serves as a leading indicator, foreign investors sold $12.86 billion worth of S. Korean government bond futures in December. This marks the largest monthly sell-off since September 2021, when $17.28 billion was sold.
The sell-off was fueled by concerns that U.S. interest rate cuts would be delayed, along with political instability in S. Korea, including a recent state of emergency and impeachment developments. Park Hyung-jung, an investment strategist at Woori Bank, said, “Bonds are generally associated with long-term investments. When long-term funds are pulled out, it signals that South Korea is perceived as a less attractive investment destination due to uncertainties.”
However, some experts view the outflows as temporary. A Bank of Korea official noted, “Bond maturities often occur in March, June, September, and December. If reinvestment doesn’t follow, funds naturally flow out. Given the high number of maturities at year-end and the holiday season, this appears to be a short-term phenomenon.”
Foreign investors have maintained a steady sell-off of S. Korean stocks since August. Earlier in the year, they had purchased a net $18.4 billion on the Korea Composite Stock Price Index (KOSPI) by early July, driven by optimism around the semiconductor sector and government policies aimed at boosting corporate value. However, mid-July saw a shift to net selling due to concerns over a slowing memory chip cycle involving companies like Samsung Electronics and SK Hynix.
Kim Min-kyu, a researcher at KB Securities, noted, “Since mid-July, foreign investors sold $18.24 billion worth of KOSPI stocks, with $16.3 billion coming from Samsung Electronics and $1.48 billion from SK Hynix.”
In 2024, foreign investment in South Korean stocks totaled $2.02 billion, a sharp decline from $8.16 billion in 2023, reflecting weakened investor confidence. Whether the market can recover will depend on improved stability and renewed optimism among foreign investors.
