Citi informed clients that there are now evident signs of buy-on-dip capital flows into South Korea's Kospi, supported by several market developments it highlighted in a client note.
The bank pointed to a single-day foreign net purchase of about 7.2 trillion won on July 31, which Citi said "would be the biggest single-day net purchase on record." That surge coincided with a marked reduction in monthly foreign net selling: net outflows eased to 9.8 trillion won in July from 48.4 trillion won in June and 44.5 trillion won in May, according to Citi's note. The firm also reported that fund flows into the market and related passive ETFs have accelerated since mid-July.
Citi highlighted regulatory changes that are likely to reduce volatility in retail trading. The Financial Services Commission raised the minimum deposit required for retail investors to access single-stock leveraged ETFs. Following that change, Citi noted reports that transaction volumes in major single-stock leveraged ETF products have fallen to about 50% of their monthly average since the rule took effect.
Pension fund activity provided another sign of stabilizing demand, Citi said. Korean pension funds bought 1.0 trillion won of Kospi equities in July, reversing prior months' outflows. On the National Pension Service in particular, Citi suggested that while the market has been concerned about potential rebalancing, the NPS "will likely remain overweight domestic equities for longer," given the risk of public backlash should there be a sharp reduction in domestic equity holdings.
From an equity research perspective, Citi maintained its Kospi target of 10,000, citing solid fundamentals in the memory sector and valuations the bank finds attractive. Citi added that authorities could step in if necessary with a liquidity backstop, noting the possibility of "a form of liquidity put such as a Stock Market Stabilization Fund" to support the market if conditions warrant.
Taken together, Citi's observations frame a market environment where foreign buying, steadier pension participation and regulatory tightening for retail leveraged ETF access have combined to reduce immediate volatility and encourage a buy-on-dip orientation among investors. The bank's maintained target and mention of potential official liquidity measures underscore that both private and public forces are being cited as supporting elements for the Kospi.