Kospi Index slides as foreigners dump ahead of Samsung earnings

The Kospi Index retreated by over 1.5% today, July 6, as foreign investors continued to sell their shares ahead of Samsung Electronics’ preliminary earnings report. It was trading at 7,947, down by 15% from its highest point this year.

Foreign investors are selling South Korean stocks

There are signs that the Kospi Composite Index has moved to its distribution stage. Data released on Monday showed that these investors dumped 2.2 trillion Korean won on July 3. This marked the 11th consecutive day that these investors unloaded their assets. 

In total, they have sold assets worth over 157 trillion won, or $100 billion since the year started. This selling happened as these investors booked profits after Kospi’s remarkable bull run that pushed it from 2,268 in April last year to 9,387 today.

Worse, some analysts predict that the sell-off in the second half of the year will be more severe. In a note, a top KB Securities analyst said:

“Historically, the foreign ownership ratio in the KOSPI has ranged from 29% to 45%, excluding the 2009 Lehman crisis. If the foreign ownership ratio, currently at 39.5%, drops to 35%, an additional sell-off of approximately 260 trillion Korean won is possible.”

READ MORE: Here’s why the booming Kospi Index may suffer a harsh reversal soon

The ongoing selling by foreigners comes at a time when many South Koreans are participating in the stock market. Estimates are that there are over 15 million “ant investors” trading stocks in the country. This number has increased from 9 million in 2019.

Worse, many investors have borrowed heavily to invest in the stock market. A recent report by Citi showed that retail investments in Kospi jumped to 79 trillion won ($52 billion) this year. Borrowed investments jumped to a record 29 trillion yen. This surge in leverage puts the index at risk if the bull run reverses, triggering panic selling.

Samsung and SK Hynix earnings

The ongoing surge in the Kospi Index is mostly driven by Samsung and SK Hynix, which have become trillion-dollar companies amid the memory boom. 

Therefore, the upcoming earnings season will likely lead to more gains or vice versa. Samsung Electronics will publish its preliminary results on Tuesday and its final Q2 numbers on July 23rd. SK Hynix, on the other hand, will publish its numbers on July 29.

The expectation is that they will report strong numbers, as we saw with Micron recently. Micron’s revenue jumped by over 300% in its third fiscal quarter, with management guiding to a fourth-quarter revenue of $50 billion. 

A revenue or profitability miss will lead to significant volatility in the Kospi Index. It may also reverberate in other markets like Japan and the US, where memory companies have soared.

Kospi Index technical analysis

Kospi Index chart | Source: TradingView

The daily chart shows that the Kospi Composite Index has pulled back in the past few days. It has fallen from the year-to-date high of 9,387 to 7,900 today. 

The index has already moved below the lower side of the ascending channel, a sign that bears are prevailing. On the positive side, it has remained above the 50-day moving average. 

The most likely scenario is where the index falls further, potentially to the 100-day EMA of 6,968 in the near term. Further gains will be confirmed if it jumps above the all-time high.