🚨 Foreign Capital Outflow: Semiconductor Stock Selling and KOSPI Decline Continues, Institutional Investors Begin Trend Reversal

Today Korean Economic News | 2025.04.28

📌 Foreigners Sell Large Amounts of Samsung Electronics and Hynix, Exiting KOSPI for 9th Month

💬 Foreign investors continued net selling in the KOSPI market for the 9th consecutive month in April. Samsung Electronics and SK Hynix alone accounted for nearly half of April's total net selling. As the US government strengthens semiconductor export regulations and maintains tariff policies, foreign selling is intensifying. Meanwhile, domestic institutional investors have switched to net buying for the first time in 4 months, partially offsetting the foreign selling.

1️⃣ Easy Understanding

Foreign investors have been selling Korean stocks for 9 consecutive months in the stock market. They are particularly selling shares of semiconductor companies like Samsung Electronics and SK Hynix, which is causing growing concern.

In April alone, foreign investors net sold about 3.5 trillion won worth of domestic stocks (selling more than buying). Of this amount, Samsung Electronics shares accounted for 1.2 trillion won and SK Hynix for 500 billion won, with these two companies making up almost half of the total selling.

The main reason for this trend is US policy. President Trump has imposed high tariffs of 25% on Korean products and strengthened regulations restricting high-tech semiconductor exports to China, turning on a red light for Korean semiconductor companies' profitability. Additionally, high US interest rates are causing foreign funds to leave Korea for the United States.

Fortunately, domestic institutional investors (pension funds, insurance companies, asset management companies, etc.) have started buying stocks instead. They switched to net buying for the first time in 4 months, purchasing about 1.8 trillion won worth of stocks. They are particularly buying Samsung Electronics and SK Hynix shares, helping to defend stock prices.

Experts predict that while foreign selling may continue for the time being, semiconductor companies' performance will improve in the long term due to industry recovery and increased AI demand. Individual investors should focus on investment strategies that consider companies' fundamental values and long-term prospects rather than reacting too sensitively to short-term market volatility.

2️⃣ Economic Terms

📕 Net Buying/Net Selling

Net buying/net selling refers to the difference between buying and selling amounts of financial products during a specific period.

• When the buying amount exceeds the selling amount, it's net buying; when the selling amount exceeds the buying amount, it's net selling.
• Net buying/selling trends by investor type (foreign, institutional, individual) are important indicators for understanding market sentiment.

📕 Foreign Investors

Foreign investors refer to individuals or institutions of foreign nationality investing in domestic financial markets.

• They are mostly institutional investors such as global investment banks, hedge funds, and pension funds.
• They account for a significant portion of the domestic stock market, and their trading trends have a major impact on the market.

📕 Institutional Investors

Institutional investors refer to large-scale fund operators such as asset management companies, insurance companies, pension funds, and banks, not individuals.

• They tend to invest from a long-term perspective based on expertise and information.
• Along with foreign investors, they are known as "big hands" in the market and have a significant influence on market direction.

📕 Tariffs

Tariffs are taxes imposed by a country on imported goods from foreign countries.

• They are imposed for purposes such as protecting domestic industries, resolving trade imbalances, and securing fiscal revenue.
• Tariff imposition leads to increased prices of imported goods, negatively affecting the competitiveness and profitability of exporting countries' companies.

3️⃣ Principles and Economic Outlook

💡 Causes and Effects of Foreign Capital Outflow

• Let's analyze why foreign investors are leaving the Korean market and its impact.

  • First, the strengthening of US protectionist policies is a major cause. The Trump administration has imposed high tariffs of 25% on Korean products under "America First," higher than those on Japan (24%) and the European Union (20%). Export regulations on high-tech products like semiconductors have also been strengthened. The US is restricting exports of advanced semiconductors to China to prevent Chinese technological advancement, and Korean companies must comply with these regulations. As a result, Samsung Electronics and SK Hynix face restrictions in accessing the Chinese market and their global competitiveness is affected. Foreign investors are withdrawing their investments believing these policy changes will negatively impact Korean semiconductor companies' profitability.

  • Second, changes in the global economic environment are also important factors. The high US interest rate (5.0~5.25%) is causing global funds to flow toward the United States. With Korea's interest rate at 3.25%, the large gap with the US is prompting investors to move their money to relatively higher-yielding US assets. Increased uncertainty due to the rekindling of US-China trade conflicts and global supply chain reorganization has also had an impact. The semiconductor industry faces greater uncertainty as it's at the forefront of US-China technology competition. Concerns about global economic growth slowdown and consumption contraction due to persistent inflation are also darkening the outlook for semiconductor demand. These complex factors are driving foreign investors' selling of Korean stocks.

  • Third, foreign selling has various impacts on the market. The most direct impact is stock price decline. With foreign selling continuing for 9 months, the KOSPI index has fallen about 8% this year, with semiconductor stocks recording even larger declines. Samsung Electronics has fallen 15% and SK Hynix 12% since the beginning of the year. Foreign selling also leads to Korean won depreciation. As foreigners sell stocks and convert to dollars to move funds abroad, won demand decreases while dollar demand increases. The won/dollar exchange rate has recently risen to the 1,380 won level. Foreign capital outflow can also worsen the funding environment for domestic companies in the long term. Stock price declines increase the cost of raising new funds for companies and limit investment capacity.

• The Korean market exit by foreign investors is due to complex factors such as strengthened US protectionist policies, changes in the global economic environment, and increased uncertainty in the semiconductor industry. This affects the domestic economy in various ways, including stock price declines, won depreciation, and deterioration of corporate funding environments. However, increased buying by institutional investors and the semiconductor industry's long-term growth potential are expected to act as market stabilizing factors.

💡 Challenges and Opportunities for the Semiconductor Industry

• Let's examine the challenges facing the semiconductor industry and its future growth possibilities.

  • First, the semiconductor industry currently faces short-term difficulties. The US restriction on advanced semiconductor exports to China is a major challenge for Samsung Electronics and SK Hynix. China is a major consumer of memory semiconductors, and market reduction due to export restrictions is inevitable. There's also concern about weakened competitiveness in the US market as the US imposes 25% tariffs on Korean products. Other difficulties include reduced semiconductor demand due to global economic slowdown and intensified competition from Chinese companies. There are also concerns about oversupply as growth in traditional memory semiconductor markets like PCs and smartphones stagnates. These complex factors are negatively impacting semiconductor companies' stock prices.

  • Second, long-term growth opportunities remain substantial. Semiconductor demand is expected to continue increasing due to new technology developments such as artificial intelligence (AI), autonomous vehicles, Internet of Things (IoT), and metaverse. The AI semiconductor market, in particular, is expected to grow at an average annual rate of over 40%. Samsung Electronics and SK Hynix are actively responding to this market through advanced process technology and high-performance memory development. Korean semiconductor companies are also expanding large-scale investments in major markets like the US and Europe, advancing geographical diversification. Samsung Electronics is investing about 17 trillion won to build a foundry (semiconductor contract manufacturing) plant in Texas, USA, while SK Hynix is establishing packaging facilities in the US. This local production expansion also has the effect of bypassing tariffs. Above all, semiconductors are essential components with no substitutes, and the industry's fundamental growth potential remains large.

  • Third, strategic responses from the government and companies are important at this time. The Korean government has presented a vision of becoming a "semiconductor superpower" and is promoting the K-semiconductor belt construction, expanding R&D tax support, and fostering talent. It's strengthening the competitiveness of the semiconductor industry through a public-private joint investment plan of about 340 trillion won. At the company level, the focus is on advanced technology development and production capacity expansion. Samsung Electronics has set a goal to become the world leader in system semiconductors by 2030, while SK Hynix is focusing on next-generation memory technology development. They are also pursuing comprehensive strategies such as expanding overseas local production, strengthening the industrial ecosystem, and securing research personnel. Responding to global supply chain reorganization through cooperation with allied countries like the US, Japan, and Europe is an important task.

• While the semiconductor industry faces short-term challenges such as strengthened US regulations, tariff imposition, and global demand slump, its growth potential remains large in the long term due to increased demand from AI and advanced technology development, and active technology development and investment expansion. Strategic responses from the government and companies are important to turn current challenges into opportunities, and investors need to focus on long-term growth rather than short-term volatility.

💡 Market Response Strategies for Individual Investors

• Let's look at strategies individual investors might consider in the current stock market situation.

  • First, fundamental value assessment is more important than blindly following or opposing foreign selling. Reflexively following foreign selling might not be wise. Foreign investors can be wrong too, and their investment purposes and time horizons may differ from those of individual investors. Rather, you might find buying opportunities by carefully analyzing companies' fundamental values (operating profit, growth potential, dividends, debt ratio, etc.) and determining if stock prices are undervalued. Currently, major domestic semiconductor companies' stock prices are relatively undervalued compared to their performance. Samsung Electronics' price-earnings ratio (PER) is about 12 times, lower than the global competitors' average (about 18 times). Of course, there's possibility of further decline in the short term, so it's good to spread risk through a split purchase strategy.

  • Second, diversified investment and a long-term approach are necessary. In markets with high uncertainty like now, diversification is important rather than concentrated investment in specific stocks or industries. It's good to spread risk by investing in various industries such as eco-friendly energy, biohealth, and digital content beyond semiconductors. It's also important to approach from a long-term perspective rather than overreacting to short-term market fluctuations. Historically, stock markets tend to rise in the long term despite short-term volatility. Particularly, quality companies often overcome temporary difficulties and continue to grow. Therefore, a "Dollar Cost Averaging" strategy, investing a certain amount regularly, can reduce the burden of trying to time the market and expect stable returns in the long term.

  • Third, it's necessary to watch institutional investors' movements and industry trends. Recently, domestic institutional investors have switched to net buying, opposite to foreign selling. As institutional investors tend to invest from a long-term perspective based on expertise and information, their movements can be seen as meaningful market signals. Especially, the investment direction of large pension funds like the National Pension Service can be an important reference indicator. Understanding long-term industry trends is also important. AI, eco-friendly energy, and digital transformation are fields expected to grow in the long term despite temporary economic downturns. Investing in companies aligned with these industry trends can be advantageous in the long term. However, it's important to comprehensively evaluate financial soundness, profitability, competitiveness, etc., rather than making investment decisions based solely on growth potential.

• Individual investors can make rational investment decisions in the current market situation through an approach based on fundamental value assessment, maintaining diversified investment and a long-term perspective, and watching institutional investors' movements and industry trends. It's important to focus on companies' intrinsic value and growth potential rather than being swayed by short-term market volatility.

4️⃣ In Conclusion

Foreign investors have been recording net selling in the Korean stock market for 9 consecutive months, withdrawing funds. Particularly, continued concentrated selling of Samsung Electronics and SK Hynix has significantly decreased the stock prices of semiconductor companies, Korea's core industry. The main causes of this foreign selling are identified as strengthened US protectionist policies, rekindled US-China trade conflicts, and concerns about global economic slowdown.

Fortunately, domestic institutional investors have recently switched to net buying for the first time in 4 months, contributing to market stabilization. They are expanding buying particularly of major semiconductor companies, partially offsetting the impact of foreign selling. This suggests that domestic institutions judge the current price levels to be undervalued compared to companies' real value.

While the semiconductor industry faces short-term challenges from US regulations and tariffs, global demand slump, etc., demand increase is expected in the long term due to new technology developments such as AI, autonomous vehicles, and metaverse. Government support policies for the semiconductor industry and companies' active investment and technology development will play important roles in overcoming these challenges.

Individual investors should focus on companies' fundamental values and maintain diversified investment and a long-term perspective in the current market situation. Rather than blindly reacting to foreign selling, it's desirable to make investment decisions considering companies' growth potential and financial soundness, and long-term industry trends.

After all, the current market situation is both a crisis and an opportunity. Despite short-term volatility, Korea's core industry, semiconductors, is at the center of global digital transformation and has great long-term growth potential. When the government, companies, and investors all make wise judgments and strategic responses from this long-term perspective, they can turn current challenges into stepping stones for future growth.