Interest Rates and Foreign Fund Flows Key Variables for a Rebound
U.S. interest rates were identified as a key factor in determining the market's direction. Analysts said funds tend to flow into equities about two to three months after the U.S. 10-year Treasury yield peaks and begins to fall. If lower interest rates and stable oil prices persist, stocks such as Big Tech could rebound first, but on this day the deterioration in sentiment toward semiconductor stocks prevented positive factors from being fully reflected in share prices.
Analysts also cited an assessment that U.K.-based funds accounted for a substantial portion of the foreign selling that has continued in the Korean market this year. One report estimated net sales by U.K.-based funds at about KRW 97 trillion from January to September, potentially driven by a desire to convert assets to cash ahead of changes to inheritance tax and pension rules in the U.K. If much of that selling has already run its course, the existing pressure from foreign investors could ease, though markets will need to watch whether deteriorating sentiment stemming from the U.S. creates a new source of selling.
Analysts said market sentiment had swung to an extreme, with share prices failing to rise on positive news such as interest-rate cuts or the end of a war, while reacting sharply to negative news. With investors needing to consider interest rates and inflation alongside elections, AI investment, data center power supply and corporate earnings, it is more difficult than in the past to judge the market's direction. Changes in interest rates and whether AI investment is actually scaled back were cited as key to calming foreign selling and supporting a market recovery.