KOSPI in South Korea rises above 4,900 points—foreign investors increase holdings, retail investors withdraw. How much further can this rally go?
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The current South Korean stock market presents a highly ironic liquidity structure: the market is soaring, but retail investors are retreating.
On Monday local time, the Korea Composite Stock Price Index (KOSPI) broke through 4,900 points for the first time, rising 1.3% on the day, and up 15% year-to-date (YTD), significantly outperforming other Asian markets. However, this is a typical situation of “institutions entering, retail investors withdrawing.”
According to the information from Chasewind Trading Desk, Nomura stated in a report on January 18 that at present, the driving force behind the market’s rise comes entirely from foreign investors and local institutions (mainly financial investment). In contrast, South Korean retail investors have been net sellers of stocks during this period.
This divergence is particularly obvious in the ETF fund flows. Since May 2025, offshore-listed South Korean ETFs have continued to receive strong net inflows, with the cumulative amount exceeding $4 billion. This indicates that global capital is systematically increasing positions in Korea via passive tools, betting on its core role in the global tech supply chain.
What exactly are foreign investors buying?
Nomura’s statistics show that although the overall trend is “foreign capital in, retail out”, the fund competition is more complex at the individual stock level. Based on the capital flow analysis of 193 stocks (from May 2025 to now), there are significant differences in the composition of buyers of different leaders.
Market leaders Samsung Electronics and SK Hynix both show net buying by multiple categories of buyers. Specifically, Samsung Electronics is mainly dominated by foreign investment, while SK Hynix is mainly driven by local institutions.
Certain sectors rely almost entirely on foreign capital. For example, the rises in HD Hyundai Heavy Industries and HD Hyundai were almost entirely driven by net buying from foreign investors.
The spillover effect of AI capital expenditure
Nomura believes that the current Korean stock market trend is not just driven by capital, but is also a fundamental revaluation. The Korean market is seen as one of the most highly leveraged in the AI theme.
TSMC’s earnings last week injected a shot of confidence into the market. Its 2026 capital expenditure budget was raised to $52-56 billion (higher than Nomura’s expected $45-50 billion). This directly proves that there will still be strong structural AI demand until 2028-29, providing great confidence for South Korea’s memory chip giants.
Korea’s stock market earnings momentum remains strong. The consensus EPS forecast for the MSCI Korea Index for fiscal year 2026 has been revised up 9.0% YTD (in contrast, Asia ex-Japan overall only revised up 2.6%). The market currently expects the compound annual growth rate (CAGR) of Korean corporate earnings from 2025-2027 to be about 32%, far surpassing peers in the region.
High does not mean "expensive"
Nomura emphasizes that in terms of valuation, the Korean stock market is not expensive.
Although cash equity trading volume has surged, KOSPI’s turnover velocity remains stable and far below the levels seen during past market frenzies. This means that there are currently no obvious signs of speculative excess.
The forward PE of the MSCI Korea Index is currently only 10.9 times. Considering the memory supercycle driven by AI and the high earnings growth rate, this valuation is still within a reasonable range.
Nomura concludes that in the context of surging AI capital expenditure and continuous earnings upgrades, combined with sustained increases from foreign capital and reasonable valuations, the upward momentum of the Korean stock market remains strong. As long as the logic of earnings upgrades is not falsified, 4,900 points may just be a mid-station in this bull market, not the end.
However, analysts also warn that despite strong fundamentals, the market still needs to be alert to short-term volatility from macro events:
US Supreme Court (SCOTUS) decision: Court rulings on Trump tariffs and the possible dismissal of Fed Chair Powell are still pending. If the court rules in favor of the White House, it could trigger market worries about Powell being dismissed, leading to short-term volatility.
Interest rate policy: The Bank of Japan (BOJ) is expected to keep interest rates unchanged in 2026, which sends a relatively stable signal for regional liquidity.
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The above content is from Chasewind Trading Desk.
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