The South Korean stock market currently exhibits a deeply ironic liquidity structure: while the market is soaring, retail investors are retreating.

On Monday local time, the Korea Composite Stock Price Index (KOSPI) broke through the 4900-point mark for the first time, rising 1.3% intraday and boasting a year-to-date (YTD) surge of 15%, a performance that significantly outpaces other Asian markets. However, this is a classic rally characterized by "institutions buying in, while retail investors pull out."

According to information from the Wind trading desk, Nomura stated in a report on January 18th that the current force driving the market higher comes entirely from foreign investors and local institutions (primarily financial investments). In contrast, Korean retail investors have consistently been net sellers of stocks during this period.

This divergence is particularly evident in ETF fund flows. Since May 2025, offshore-listed Korean ETFs have continued to see strong net inflows, with the cumulative amount exceeding $4 billion. This indicates that global capital is systematically increasing its exposure to Korea through passive instruments, betting on its core position in the global tech supply chain.

What exactly are foreign investors buying? Nomura's statistics show that while the overall trend is "foreigners buying, retail selling," the capital dynamics at the individual stock level are more complex. Based on an analysis of fund flows for 193 stocks (from May 2025 to present), the composition of buyers varies significantly among different market leaders.

Market bellwethers Samsung Electronics and SK Hynix both show net buying from multiple categories of investors. Among them, buying in Samsung Electronics is primarily led by foreign investors, while SK Hynix is mainly driven by local institutions.

Certain sectors are entirely reliant on foreign capital. For instance, the rise in HD Hyundai Heavy Industries and HD Hyundai is almost entirely fueled by net buying from foreign investors.

The spillover effects of AI capital expenditure Nomura believes this round of gains in the Korean stock market is not merely driven by liquidity but also a fundamental reassessment. The Korean market is seen as one of the most highly leveraged plays on the AI theme.

TSMC's earnings last week provided a significant boost to market confidence. The company raised its 2026 capital expenditure budget to $52-56 billion (above Nomura's expectation of $45-50 billion). This directly confirms that structural AI demand remains robust until 2028-29, offering substantial confidence support for Korea's memory chip giants.

The earnings momentum for Korean stocks remains strong. The consensus earnings estimate for the MSCI Korea Index for fiscal year 2026 has been revised upwards by 9.0% year-to-date (compared to just a 2.6% upward revision for Asia ex-Japan overall). The market currently anticipates a compound annual growth rate (CAGR) of approximately 32% for Korean corporate earnings from 2025 to 2027, a pace far exceeding regional peers.

High levels do not necessarily mean "expensive" Nomura emphasizes that, in terms of valuation, the Korean stock market is not expensive currently.

Despite a surge in cash equity trading volume, the turnover velocity of the KOSPI remains stable and is significantly lower than levels seen during past periods of market euphoria. This suggests there are no clear signs of speculative excess at present.

The MSCI Korea Index currently trades at a forward price-to-earnings (PE) ratio of just 10.9x. Considering the AI-driven memory super cycle and high earnings growth, this valuation level remains within a reasonable range.

Nomura concludes that against the backdrop of surging AI capital expenditure, continuous earnings upgrades, sustained foreign inflows, and reasonable valuations, the upward momentum for Korean stocks remains powerful. As long as the logic of earnings upgrades remains unchallenged, the 4900-point level might merely be a waystation in this bull market, not the final destination.

However, analysts also warn that despite strong fundamentals, the market must remain vigilant about volatility triggered by short-term macro events:

U.S. Supreme Court (SCOTUS) rulings: Legal decisions concerning Trump-era tariffs and the potential dismissal of Fed Chair Jerome Powell are still pending. A ruling favoring the White House could spark market concerns about Powell's removal, leading to short-term volatility.

Interest rate policy: The Bank of Japan (BOJ) is expected to keep interest rates unchanged in 2026, which provides a relatively stable signal for regional liquidity.