Despite a strong 8% increase in the KOSPI this year, foreign investors' stake in South Korean stocks has dropped to its lowest level in nearly two years, raising concerns about the impact of political instability and economic uncertainties. /News1

Despite an 8% rise in the KOSPI index this year, foreign investors' share of South Korean stocks has reached its lowest level in 1 year and 8 months.

According to the Korea Exchange, the market capitalization of stocks held by foreign investors as of Feb. 13 stood at 677.86 trillion Korean won ($515.17 billion), accounting for 32.02% of the total market capitalization of 2116.87 trillion won ($1.61 trillion). This is the first time the foreign investor share has hit 32.02% since June 21, 2023, when the U.S. interest rate hike coincided with a slowdown in the recovery of the domestic semiconductor industry.

At the beginning of last year, foreign ownership stood at 32.72%, but it peaked at 36.1% in July 2024 when the KOSPI surpassed 2,800, driven by the U.S. rate cuts and a boom in AI semiconductor stocks. Since then, the foreign share has been on the decline, especially after the “Black Monday” triggered by concerns over the U.S. economic downturn in August. By November, it fell below the 33% mark.

Analysts point out that political instability from the impeachment proceedings and persistent concerns about economic slowdown have contributed to foreign investors' exit from the market. As of Feb. 14 this year, foreigners had sold 1.64 trillion won ($1.24 billion) worth of KOSPI stocks, marking seven consecutive months of net selling since August 2024.

On the other hand, retail investors, buoyed by the KOSPI’s rebound, have been aggressively buying stocks in sectors such as shipbuilding and defense, which benefited from former U.S. President Trump’s policies. As of Feb. 14, retail investors had bought a net total of 2.76 trillion won ($2.10 billion) in KOSPI stocks since the start of the year.

Market experts suggest that it will be difficult for foreign investors to return to the KOSPI in the short term due to ongoing concerns such as the U.S. tariff policies.

Lee Young-won, a researcher at Heungkuk Securities, said, “The tariffs between the U.S. and S. Korea, set to begin in April, are expected to be broad and detailed.” He also explained, “Even though S. Korea has a free trade agreement with the U.S., the trade imbalance in key industries like semiconductors and S. Korea’s position as the eighth-largest trade deficit country could lead to conflicts.”