The flow ledger
Start with what the tape did, then with who did it. The KOSPI closed at 6,909.91 on Friday, up 3.33 per cent on the week, after a 7,051.64 close on the 9th, its first finish above 7,000 since July 23. On the main board retail investors net sold 9.9104 trillion won and foreign investors net sold 2.1259 trillion won. Institutions net bought 3.59 trillion won, and the line labelled other corporate entities net bought 8.4906 trillion won, a line that reflects share buybacks by Samsung Electronics and SK hynix.[1]
Read those four lines together and the week's gain has a different owner than the headline suggests. The side that needed persuading, retail and foreign holders, was selling; the buyer that absorbed most of it was the issuer itself, working its own buyback programme. Foreigners alone net sold 1.4391 trillion won of Samsung Electronics and 1.2074 trillion won of SK hynix, the same two names doing the buying. A buyback is a real bid, and it lifted the close. It is also a bid with a budget and a calendar, and a budget is a weaker floor than a changed earnings view. The alternative reading is ordinary profit-taking after a start to the week of more than 4 per cent; that fits the retail line, but it leaves unexplained why the fear gauge, the KOSPI200 Volatility Index, rose 17.67 per cent to 46.28 in a week the index closed higher.[1]
What the price is still missing
The scale of the retreat matters because it shows what the buyback is standing against. Combined KOSPI and KOSDAQ capitalisation stood at 6,022 trillion 230 billion won late on Monday morning, down 212 trillion 555 billion won, or 3.41 per cent, from August 14, and 1,971 trillion 173 billion won, or 24.66 per cent, below June 22, when the index was running at its all-time high. Samsung Electronics is worth 1,482 trillion 31 billion won, 30 per cent below its June 18 peak; SK hynix is at 1,263 trillion 751 billion won, 39 per cent below June 22. The index itself opened more than 3 per cent lower and stood at 6,677.23, down 3.37 per cent, early in the session. Against that, last week's 8.4906 trillion won of corporate buying is a small number.[2], [1]
The competing explanation comes from outside Korea: rates and oil. Brent topped 107 dollars on Monday, Japan's Nikkei fell 1.7 per cent while the KOSPI fell 3.3 per cent, and Goldman Sachs and J.P. Morgan both moved to expect a 25 basis point increase from the US Federal Reserve (Fed) this week, with the market pricing an 87 per cent chance of it. A hike that is 87 per cent priced does little new damage on the day it lands; what it does is raise the discount rate on every long-duration earnings story, and memory chips are the longest-duration story in Seoul. That channel is real, and it explains the direction. It explains less well why Korea fell about twice as much as Tokyo, or why the two names being bought back are exactly the two names foreigners are selling.[3], [4]
Which number settles it?
A week ago in this column I read the KOSPI's 3.34 per cent open as one flow at two prices and tied it to foreign and institutional net buying surviving the August consumer price release. Half of that condition failed: institutions kept buying, foreigners turned net sellers of 2.1259 trillion won, and the price held anyway because the issuers stepped in. So the thesis weakens but stands. The flow still sets the price; the flow has simply changed hands, from holders who are free to leave to a buyer whose budget is fixed in advance.[1], [5]
The number to watch is the other-corporates line in the exchange's weekly flow data, read next to the foreign line. If that corporate bid stays above the foreign outflow for another week, the floor is the issuers' balance sheet and the 6,600 area is a level with a budget behind it. If the corporate line shrinks while foreigners keep selling Samsung Electronics and SK hynix, the market is back to pricing the memory cycle on its own, with capitalisation already 24.66 per cent below June 22 and the index about 3 per cent lower again on Monday. Volume is the lie detector here: a rebound on thin turnover with the buyback still running points to the budget; only a rebound without it points to demand.[1], [2]