Foreign Investors Pull Out of Seoul Shares Amid Geopolitical Strains

Amid rising geopolitical anxieties in and around the Korean Peninsula, foreign investors are moving away from Seoul's stock market. The weakening of the Korean won against the U.S. dollar accompanied the broad sell-off in shares.

By Thursday's close, the Kospi index recovered slightly to 2,440.04 points, thanks to local retail investors who poured in 119.6 billion won ($82 million), cushioning the earlier dip into the 2,430-point territory.

However, this didn't stop foreign investors who extended their selling for the fifth straight session, with Thursday witnessing a disposal of 130.9 billion won in shares on the Kospi. Just the previous day, foreign investors had sold off a substantial 902.1 billion won, contributing to a 2.47 percent drop in the main board to 2,435.9 points.

Institutional investors also joined the outflow, with a 17.6 billion won net sell-off on Thursday, following a 12 billion won sell-off the day prior.

This pullback by offshore investors is linked to fading hopes for a softer monetary policy from the U.S. Federal Reserve. The CME Group's FedWatch tool signaled only a 59.5 percent probability of a rate cut in the Fed's March meeting, a sharp decline from over 80 percent at the start of the year.

Global geopolitical tensions further put a damper on investment appetites. An analyst cited concerns stemming from U.S. military moves against Houthi rebels in Yemen and rising tensions with North Korea as South Korea's President Yoon Suk Yeol took a strong stance against potential provocations.

These factors, coupled with a weaker-than-expected rebound of the Chinese economy — a significant concern for China-dependent Korea — have contributed to the strength of the U.S. dollar and reduced the attractiveness of emerging market shares.

Reflecting this trend, the Korean won has devaluated against the dollar, closing slightly stronger at 1,339 won on Thursday, but still showing a more than 50 won decrease over the past two weeks. At the same time, the U.S Dollar Index surged to its highest point this year.

Despite this, some market analysts believe that the won will not weaken much further, expecting that the Fed will still cut the base rate within the first half of the year, providing some stabilizing effect.

foreign, investors, geopolitical