Key Takeaways
- • Foreign investors net-sold 26 trillion Korean won (about $18 billion at prevailing rates; approximate conversion) of Korean securities over 13 trading days from September 28 to October 16, according to the Korea Exchange, with net buying on only two days.
- • Renewed fears of a U.S. hedge fund liquidation, centered on rumors about AI-focused fund Value Aligned Research Advisors (VARA), revived memories of the July collapse of Situational Awareness (SA).
- • Goldman Sachs data shows hedge funds net-sold a global AI stock basket from October 8 to 14 at the second-fastest pace in the past year, unwinding positions built since early last year.
- • Sell-offs are compounded by the U.S. midterm elections on November 3, rising bond yields, and Middle East tensions, while KOSPI trades at a 4.9x forward P/E versus 19.3x for the U.S.
Summary
Foreign selling in Korean equities has continued at a historic pace, with investors net-selling 26 trillion won of securities on the stock market over 13 trading days from September 28 to October 16, according to the Korea Exchange. Foreigners net-bought on only two of those sessions, October 1 and October 16. Analysts attribute the outflows to a combination of hedge fund deleveraging, macro uncertainty and a defensive shift ahead of the U.S. midterm elections.
The selling was triggered in part by rumors, circulated on U.S. social media on October 15 (local time), that AI-focused hedge fund Value Aligned Research Advisors (VARA) was liquidating due to losses. VARA was founded last year by Ben Hoskins, a former BlackRock employee, and algorithmic trader David Field. As of the end of June, it reportedly held significant stakes in Bloom Energy and Nebius (each about $1.7 billion), CoreWeave (about $1.1 billion), and Micron, SanDisk and Seagate, the same stocks at the center of the recent plunge. The rumors recalled the July collapse of Situational Awareness (SA), run by Leopold Aschenbrenner, a former OpenAI researcher. According to the report, SA used leverage of up to four times its capital to buy semiconductor and AI infrastructure stocks, and after those holdings fell and rival funds concentrated short positions, it sold its public shares to Citadel at fire-sale prices. During SA's liquidation rumors in late July, foreigners net-sold 11.9 trillion won of KOSPI stocks over four sessions, and the index fell 17.2% over three trading days from July 28 to 30.
Beyond individual funds, Goldman Sachs data cited in the report shows hedge funds net-sold a global AI basket of semiconductor, data center and power stocks from October 8 to 14, unwinding positions accumulated since early last year. The pace was the second-fastest in a year, and outright selling was 3.5 times short-selling volume. Funds exiting AI rotated into defensive sectors such as healthcare and consumer staples, adding pressure on the KOSPI, which is heavily weighted toward memory chips. The Korea Capital Market Institute attributed the moves to rising bond yields, doubts about AI profitability and hedge funds realizing gains ahead of October settlement.
External risks compounded the selling. Investors have reduced risk exposure ahead of the November 3 U.S. midterm elections, which the report notes have historically been among the most volatile periods of a presidential term. Renewed military tensions with Iran and potential oil price spikes raised concerns about higher interest rates, which could increase funding costs for data center operators such as CoreWeave and curb capital spending and semiconductor orders.
Brokers argue fundamentals have not collapsed, though the market's favorable phase has ended. As of October 15, the KOSPI's forward P/E was 4.9x, compared with 19.3x for the U.S., 15.6x for Japan and 18.8x for Taiwan. Valuation alone, however, has not attracted buyers. Samsung Electronics completed its 15 trillion won share buyback on October 6, and SK Hynix is expected to finish its 40 trillion won buyback around October 20. Brokers say a recovery depends on the return of foreign investors and point to Samsung and SK Hynix earnings and shareholder returns this month, the November 3 midterms, and Anthropic's IPO expected in mid-November as key catalysts.
The selling was triggered in part by rumors, circulated on U.S. social media on October 15 (local time), that AI-focused hedge fund Value Aligned Research Advisors (VARA) was liquidating due to losses. VARA was founded last year by Ben Hoskins, a former BlackRock employee, and algorithmic trader David Field. As of the end of June, it reportedly held significant stakes in Bloom Energy and Nebius (each about $1.7 billion), CoreWeave (about $1.1 billion), and Micron, SanDisk and Seagate, the same stocks at the center of the recent plunge. The rumors recalled the July collapse of Situational Awareness (SA), run by Leopold Aschenbrenner, a former OpenAI researcher. According to the report, SA used leverage of up to four times its capital to buy semiconductor and AI infrastructure stocks, and after those holdings fell and rival funds concentrated short positions, it sold its public shares to Citadel at fire-sale prices. During SA's liquidation rumors in late July, foreigners net-sold 11.9 trillion won of KOSPI stocks over four sessions, and the index fell 17.2% over three trading days from July 28 to 30.
Beyond individual funds, Goldman Sachs data cited in the report shows hedge funds net-sold a global AI basket of semiconductor, data center and power stocks from October 8 to 14, unwinding positions accumulated since early last year. The pace was the second-fastest in a year, and outright selling was 3.5 times short-selling volume. Funds exiting AI rotated into defensive sectors such as healthcare and consumer staples, adding pressure on the KOSPI, which is heavily weighted toward memory chips. The Korea Capital Market Institute attributed the moves to rising bond yields, doubts about AI profitability and hedge funds realizing gains ahead of October settlement.
External risks compounded the selling. Investors have reduced risk exposure ahead of the November 3 U.S. midterm elections, which the report notes have historically been among the most volatile periods of a presidential term. Renewed military tensions with Iran and potential oil price spikes raised concerns about higher interest rates, which could increase funding costs for data center operators such as CoreWeave and curb capital spending and semiconductor orders.
Brokers argue fundamentals have not collapsed, though the market's favorable phase has ended. As of October 15, the KOSPI's forward P/E was 4.9x, compared with 19.3x for the U.S., 15.6x for Japan and 18.8x for Taiwan. Valuation alone, however, has not attracted buyers. Samsung Electronics completed its 15 trillion won share buyback on October 6, and SK Hynix is expected to finish its 40 trillion won buyback around October 20. Brokers say a recovery depends on the return of foreign investors and point to Samsung and SK Hynix earnings and shareholder returns this month, the November 3 midterms, and Anthropic's IPO expected in mid-November as key catalysts.
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