Foreign investors dump Korean stocks amid hedge fund liquidation fears

Foreign selling resumed in South Korea’s stock market Tuesday after a two-session pause, wiping out the Kospi’s recent rebound amid speculation that leveraged hedge funds investing in artificial intelligence (AI) technology stocks are being forced to liquidate positions.

According to the Korea Exchange, foreign investors sold a net 530 billion won ($373 million) worth of shares on the Kospi main board during regular trading Tuesday, reversing two consecutive sessions of net buying.

The benchmark Kospi plunged 3.73 percent to close at 5,552.74, its lowest closing level in more than six months since early April.

Foreign investors have sold more than 18 trillion won ($12.7 billion) worth of Kospi shares on a net basis so far this month, selling in nine of the month’s 12 trading sessions.

Their cumulative net selling is already approaching the 21.52 trillion won recorded in September.

Samsung Electronics and SK hynix, South Korea’s two semiconductor heavyweights, account for nearly 80 percent of foreign investors’ net selling this month.

SK hynix alone has seen more than 10 trillion won in net foreign selling, representing over half of the total.

Foreign ownership of SK hynix fell to 48.81 percent Tuesday, its lowest level since 2022. Samsung Electronics’ foreign ownership has also recently declined to around 46 percent, returning to levels last seen during the 2008 global financial crisis.

Market analysts suspect that a substantial portion of the foreign capital unloading Korean semiconductor stocks comes from hedge funds focused on technology investments.

According to Goldman Sachs data, hedge funds investing in Asia have suffered the heaviest losses among their global peers, with the resulting wave of selling affecting technology stocks across the region, not just South Korea.

Goldman Sachs’ prime brokerage desk reported that hedge funds unwound technology stock positions between Oct. 9 and 15 at the fastest pace since 2016.

Some market participants have raised concerns about a possible repeat of the turmoil linked to Situational Awareness, an AI-focused hedge fund founded by former OpenAI researcher Leopold Aschenbrenner that was cited as a catalyst for the global technology stock selloff in July.

The latest liquidation rumors center on Value Aligned Research Advisors (VARA), a hedge fund co-founded by former BlackRock executive Ben Hoskin.

VARA has invested heavily in AI-related companies, including Micron, Nebius, CoreWeave and Sandisk, whose shares have recently suffered sharp declines.

“Some analysts believe the market’s steep decline may have occurred as VARA liquidated positions in companies such as CoreWeave,” said Kim Byung-yeon, head of investment strategy at NH Investment & Securities.

“Liquidations by leveraged funds may also have disrupted supply and demand in the Korean stock market, intensifying foreign selling.”

Market experts expect foreign investors to remain cautious about returning to Korean equities until major upcoming events have passed, including the U.S. midterm elections on Nov. 3 and Anthropic’s anticipated initial public offering later this year.