72 trillion won in a single day! Foreign investment net purchases set a record on Friday! Wall Street: The funding headwinds for Korean stocks have dissipated.

The Korean stock market is witnessing a substantial turn in its funding landscape. The net buying scale by foreign investors in a single day has set a historical record, while the selling pressure from domestic institutions has significantly diminished. Coupled with tightened regulations on leveraged ETFs, these multiple factors indicate a marginal improvement in the volatility of the KOSPI market. On July 31, foreign investors net bought approximately 7.2 trillion won worth of KOSPI stocks in a single day, setting the highest record for a single-day net purchase ever. According to news from Wind Information and a report by Citigroup research analyst Jin-Wook Kim, this figure marks a fundamental reversal from the significant outflow trend of foreign capital that had persisted for several months. Citigroup currently maintains its KOSPI target at 10,000 points, believing that the headwinds from capital flows are further dissipating. In terms of market impact, the monthly net selling scale by foreign investors has narrowed significantly to 9.8 trillion won in July, compared to net sells of 48.4 trillion won and 44.5 trillion won in June and May, respectively. Meanwhile, domestic pension funds and mutual funds turned net buyers of KOSPI stocks, totaling 1.0 trillion won in July, after net sells of 2.2 trillion won and 2.4 trillion won in May and June, respectively. Citigroup believes that the funding headwinds for the Korean stock market have clearly weakened, while the fundamental and policy tailwinds are gathering strength. Record net buying by foreign investors, significant narrowing of monthly selling The scale of foreign capital return is unparalleled in historical data. The single-day net purchase of 7.2 trillion won on July 31 far surpassed any previous single-day records, marking a significant shift in foreign investors' attitude towards the KOSPI. According to Citigroup's research report, the recent adjustments in the KOSPI are primarily driven by foreign investors' rebalancing operations and profit-taking. However, since mid-July, the pace of capital inflow into the KOSPI market and overseas KOSPI-related passive ETFs has noticeably accelerated, with this trend further reinforced by the end of the month. From a monthly data perspective, the net selling scale by foreign investors narrowed to 9.8 trillion won in July, a significant decrease compared to previous levelsnet sells were 48.4 trillion won and 44.5 trillion won in June and May, respectively. This reduction indicates that the previously dominant selling pressure from foreign investors that pushed the market down has substantially eased, and the momentum of buying on dips is accumulating. Tighter regulations on single-stock leveraged ETFs help stabilize market volatility The Financial Services Commission (FSC) of South Korea officially tightened the entry barriers for retail investors into single-stock leveraged ETFs starting July 31, and this new regulation is expected to suppress overall volatility in the KOSPI market. Specifically, the minimum margin requirement for retail investors participating in single-stock leveraged ETFs has been raised significantly from 10 million won (including stocks and cash) to 30 million won (cash only). Following the implementation of the new regulation, the market effect has been immediateaccording to the Korea Herald on July 31, the trading volume of major single-stock leveraged ETFs has dropped to about 50% of its monthly average level after the new rules were put in place. Meanwhile, the market capitalization of 16 single-stock leveraged ETFs has also shown a noticeable decline. Citigroup believes that the decrease in retail investor participation in high-volatility instruments contributes to stabilizing short-term fluctuations in the KOSPI market, providing a more stable operating environment for the market. Concerns about National Pension Service rebalancing ease, fund buying turns positive Previously, there were concerns regarding potential selling pressure from the National Pension Service (NPS) in South Korea due to possible rebalancing operations, but actual data from July indicates that institutional funds have quietly shifted direction. In July, the combined net purchases of KOSPI stocks by Korean pension funds and mutual funds totaled 1.0 trillion won, in stark contrast to net sells of 2.2 trillion won and 2.4 trillion won in May and June, respectively. Citigroup research points out that when the KOSPI was near 6,500 points, the NPS's allocation ratio to domestic stocks had dropped to 24.2%, down from 29.4% in May. Citigroup believes that given the potential public backlash if the NPS significantly reduces its domestic stock holdings, it is highly likely that the NPS will maintain an overweight position in domestic stocks for an extended period, with a potential allocation cap of 28.8% or even higher. Furthermore, Citigroup expects that if the KOSPI can rise to the range of 9,000 to 10,000 points this year, the NPS may gradually restore its rebalancing operations in Korean stocks. Citigroup maintains its target price of 10,000 points and monitors the possibility of policy support Against the backdrop of multiple positive signals, Citigroup research maintains its KOSPI year-end target of 10,000 points and lists several supportive tailwinds for this target. Citigroup believes that the solid fundamentals of the storage chip sector, coupled with the KOSPI's current valuation at historical lows, constitute core support for the market. At the same time, South Korea's robust economic fundamentals and friendly policy mix are generating new upward momentum. Notably, Citigroup also points out that should market conditions require it, South Korean financial authorities may provide liquidity support, including interventions in the form of establishing a stock market stabilization fund, which provides a certain degree of policy support for the market. Citigroup believes that as the funding headwinds continue to dissipate, the combined effects of the aforementioned fundamental and policy factors will become increasingly evident. This article is reproduced from "Wall Street Insights," author: Zhang Yaqi; edited by GMTEight: Xu Wenqiang.