Individual investors are consistently selling domestic stocks whenever the Korean stock market shows signs of a rapid increase, indicating a trend of exiting the Korean market. Out of the 10 exchange-traded funds (ETFs) listed this year, six are based on overseas assets. Even among ETFs that do invest in domestic underlying assets, only two out of 10 focus on Korean stocks.
According to the Korea Exchange on June 17, out of the 66 ETFs newly listed from the beginning of this year to June 14, approximately 60 percent, or 38 products, are based on overseas assets. This marks a notable increase in the proportion of overseas-based ETFs compared to last year, when 80 out of 159 listed ETFs had foreign underlying assets.
When categorized by asset type, the contrast between domestic and foreign allocations becomes more evident. Among ETFs listed this year, those investing in Korean stocks amount to only 12 out of 28 products focused on domestic assets, representing less than half of the total. In terms of all listed ETFs, this constitutes just 18 percent. Thus, even among domestic-based products, there is a higher prevalence of bond-like instruments designed for parking idle funds rather than equity-based products like stocks.
On the other hand, out of the 38 ETFs based on foreign underlying assets, 31 are focused on stocks from foreign markets, making up the majority. This underscores the trend where the characteristics and geographical focus of new products are shaped by market demand. It also highlights the increasing preference among domestic investors for overseas markets, particularly the United States.
The trend of neglecting domestic stocks is also evident in capital inflows. According to KOSCOM ETF Check, foreign stock ETFs listed domestically have recorded a net inflow of 7.28 trillion won (approximately $5.27 billion) from the beginning of this year to June 14. Meanwhile, short-term funds saw a net inflow of 5.37 trillion won, domestic bonds 5.19 trillion won, and foreign bonds 575.5 billion won. In contrast, only domestic stock ETFs experienced a net outflow of 268.3 billion won.
This phenomenon is interpreted as a shift towards steadily rising foreign markets, contrasting with the Korean KOSPI index which has risen by only 3.9 percent from the beginning of the year until June 14. During the same period, the U.S. Standard & Poor’s 500 index rose by 13.9 percent, the Nasdaq 100 index by 17.8 percent, and Japan’s Nikkei 225 index by 16.0 percent. Throughout this year, stock markets in 14 out of 20 major countries including the United States, Japan, Taiwan, and India have reached record highs, while the KOSDAQ Index has instead declined by 0.5 percent.
The issue is that individual investors consistently sell domestic stocks whenever the Korean stock market shows signs of a rapid increase. In fact, the KOSPI index closed at 2,758.42 on June 14, surpassing its previous peak at 2,757.09, indicating an upward trend. However, individual investors were eager to realize profits from domestic equity ETFs over the past week. During this period, they sold “KODEX Leverage ETF” worth 126.1 billion won, and also engaged in net selling of “KODEX 200,” totaling 17.7 billion won, and “KODEX Semiconductor,” amounting to 12.1 billion won.
On the other hand, during the same period, it was found that among the top 20 net buying positions by individual investors, excluding inverse ETFs, all were related to U.S. ETFs. “TIGER S&P500” saw net purchases totaling 46.8 billion won, while “KODEX US AI Tech TOP10 +15% Premium” had net purchases of 40.9 billion won.
Experts view this trend as a shift away from short-term trading in the domestic stock market, which heavily depends on event-driven factors, towards overseas investments that respond based on company fundamentals. The AI boom driving up the stock prices of major tech companies like NVIDIA and Apple, coupled with a slowdown in inflation, has heightened expectations that the U.S. market will continue its steady upward trajectory as in the past. Even as U.S. stock indices repeatedly hit record highs, the unusually low levels of the Chicago Board Options Exchange (CBOE) Volatility Index (VIX), also known as the “fear index,” underscore this trend.
Read More: 6 Out of 10 New ETF Listings This Year Focus on Overseas Investments