Foreign investors have initiated a significant withdrawal from South Korean financial institutions. (Image courtesy of Yonhap)
SEOUL, Dec. 9 (Korea Bizwire) – Following President Yoon Suk Yeol’s shock declaration of martial law on December 3, foreign investors have initiated a significant withdrawal from South Korean financial institutions, marking a notable shift in international investment patterns in the country’s markets.
The exodus appears driven by concerns that the financial sector could be particularly vulnerable to political instability compared to other industries, according to market analysts.
Data from Yonhap Infomax shows that foreign investors sold a net 1 trillion won in the KOSPI market during the three days following the martial law declaration, from December 4 to December 6. The daily net selling volumes were 407.1 billion won on December 4, 317.3 billion won on December 5, and 284.1 billion won on December 6.
The selloff was particularly pronounced in the financial sector, where foreign investors divested 709.6 billion won over the three-day period. This marked the first time this year that net selling in the financial sector exceeded 200 billion won for two consecutive days.
The retreat has led to a significant decrease in foreign ownership of financial sector stocks, which fell from 37.19% on December 3 to 36.12% on December 6 – a decline of more than one percentage point. This represented the largest drop among all 21 industry sectors in the market.
Following the financial sector, the largest decreases in foreign ownership were seen in insurance (-0.60 percentage points), steel and metal (-0.37 percentage points), securities (-0.26 percentage points), transportation and storage (-0.22 percentage points), and telecommunications (-0.16 percentage points).
The trend appears even more pronounced when considering that insurance and securities are part of the broader financial sector.
The impact was particularly evident among the country’s four major financial holding companies. KB Financial Group saw its foreign ownership decrease from 78.14% to 77.19%, while Shinhan Financial Group declined from 61.09% to 60.62%, Hana Financial Group from 68.29% to 68.14%, and Woori Financial Group from 46.11% to 45.84%.
These companies’ share prices suffered significant declines during this period. KB Financial, which experienced the largest drop in foreign ownership at about one percentage point, saw its share price fall by 15.7%. Shinhan Financial declined by 9%, Hana Financial by 7.9%, and Woori Financial by 5.9%.
An executive at one of the financial holding companies attributed the selloff to concerns about potential deterioration in financial metrics and reduced shareholder returns.
“There are worries that if financial conditions worsen due to currency fluctuations or interest rate changes, it could force a retreat from share buybacks and dividend increases,” the executive explained.
However, some market observers suggest the foreign selling might be excessive. JPMorgan recently issued a report identifying the current downturn in Korean financial stocks as a potential entry point for investors, characterizing the price drops as a buying opportunity.
M. H. Lee (mhlee@koreabizwire.com)
