Foreign Investors Exit South Korean Equities in Record Selloff

The capital flight accelerated as skepticism grows over whether massive spending on artificial intelligence infrastructure will yield tangible profitability. After a series of record highs earlier this year, the benchmark Kospi index recently slipped into bear-market territory, mirroring a broader global tech retreat. Beyond AI concerns, analysts point to profit-taking and portfolio rebalancing as primary drivers for the liquidation. Ipek Ozkardeskaya of Swissquote notes that the selloff represents a natural correction following the parabolic rise of the nation's memory-chip manufacturers, compounded by volatile oil prices and geopolitical tensions.

This shift has direct consequences for the won, as the conversion of local proceeds into foreign currencies exerts downward pressure on the Korean currency. Citi Research economist Jin-wook Kim observed that the correlation between Korean stocks and the won is beginning to mirror the dynamic seen in Japanese markets, where equity swings trigger currency-hedging. Despite the equity exit, South Korean bonds remain an outlier; overseas buyers scooped up a net $1.65 billion in debt last month, bolstered by the country’s anticipated inclusion in the World Government Bond Index.