JPMorgan has indicated that South Korean retail investors are unlikely to engage in large-scale stock buying in the short term, citing subdued market sentiment and the high probability of continued outflows from leveraged exchange-traded funds (ETFs).

In a research report, analysts including Rajiv Batra and Mixo Das noted that corporate buybacks have emerged as another new source of buying demand for domestic Korean stocks, while buying momentum from pure long-only funds has also begun to recover.

Emerging market investors and global investors still have room to increase their allocations. Notably, emerging market investors are currently significantly underweight the Korean market and are no longer constrained by investment mandate clauses.

The most significant shift among pure long-only investors in the second quarter was a sharp reduction in their holdings of technology shares in South Korea and Taiwan, primarily due to the 10% position limit rule for individual stocks.

Concerns over the AI trading theme have intensified, reflected in investors broadly reducing their overall technology sector allocations. At present, the key areas where pure long-only investors are overweight include the Chinese electric vehicle sector (with CATL being the most overweight stock in Asia), the consumer sector, the Indian banking industry, as well as Korean holding groups and banks.