1997 Crisis Led Foreign Selling, Why Has It Recurred Every Year?

The 1997 foreign outflow was a historic event for the market.

The Korean market learned that foreign capital flight can hit sharply in a short time.

Retail investor: "Does this mean Korean stocks are finished?"

No, each episode had different causes and recovery speeds.

1997, what happened?

In 1997, overlapping domestic and global exchange rate and credit issues led to a surge in foreign net selling.

This was a case where financial system instability triggered foreign capital exit.

Foreign selling means overseas investors sell domestic stocks and convert to cash.

2008, why was the synchronization severe?

US credit tightening spread worldwide, causing foreign capital to withdraw en masse.

Korea was highly synchronized due to exports and financial links.

2013, what did the taper tantrum teach?

Foreign capital fell sensitively in response to US monetary policy signal changes.

This showed that one shift in policy expectations can change global capital flows.

2020, large risk aversion at the pandemic outset

In early COVID-19, foreign investors sold aggressively to avoid risk assets.

However, policy responses came quickly and some recovery was rapid.

2022, rate-hike period and outflow patterns

During global rate hikes, capital left high-risk emerging markets.

Korea was no exception, and sector and stock sensitivity differences were pronounced.

Yearly patterns, any commonalities?

At crisis onset, risk-off sentiment accelerates foreign selling.

In recovery, liquidity, exports, and corporate earnings drive the rebound.

Policy shocks and global interest rate and liquidity changes are the key variables.

So, where to start

→ 1. Check the global policy event calendar first, because the big flow changes.

→ 2. Check sector sensitivity, since the same drop can have different causes and recovery speeds.

→ 3. From a long-term view, separate causes of capital flow from market reactions.

This is for reference only.

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※ This article is for informational purposes and not investment advice.

※ Investment decisions and responsibility lie with the investor.

※ Figures are as of the time of writing and may change.