Foreign Investors' 15.4% Return Doubles Retail's — The Difference Comes Down to Bottom-Fishing Timing

Three-Line Briefing

• In the domestic stock market's recent stretch of sharp swings, foreign investors posted a 15.4% return — roughly double that of retail investors.
• Both retail and foreign investors moved to buy the dip, but retail investors entered based on how far prices had fallen, while foreign investors entered on signs of an earnings and valuation recovery.
• This isn't the first time — foreign investors also outperformed retail investors during the 2020 COVID crash.

What's Changing

As the domestic stock market has repeatedly swung between sharp drops and sharp gains recently, retail investors also jumped in to buy the dip. The problem is the outcome. According to Maeil Business Newspaper's securities coverage, foreign investors' return over the same period was 15.4% — about double the return posted by retail investors. Both groups bought when prices were cheap, but the returns diverged because their buying criteria differed.

Retail investors' bottom-fishing is generally triggered by the magnitude of the decline — in other words, how much the price has already fallen. Foreign investors, by contrast, first check whether earnings outlooks and valuation multiples still have further room to be cut before buying. Rather than focusing on price itself, they assess what fundamentals the market has already priced in at that level. This gap widens especially sharply in the early stage of a rebound. Retail investors often wait to visually confirm a rebound signal before entering — arriving late — while foreign investors, through program trading and index rebalancing, tend to have already completed staged buying near the lows.

This pattern isn't a one-off coincidence. Foreign investors also achieved higher returns than retail investors through bottom-fishing during the 2020 COVID crash. The fact that the same pattern repeats in every sharp downturn suggests that retail investors' stop-losses and delayed re-entry may be something close to a structural habit.

Numbers in Context

What matters more than the 15.4% foreign-investor return figure itself is the gap — double the retail return. A simple calculation implies retail investors' return over the same period was only around 7%, which suggests the issue may not be that retail investors failed to catch the bottom, but that they failed to hold their positions long enough even after catching it. In sharply swinging markets, a common return-eroding pattern is selling off part of a position early, spooked by volatility in the early stage of a rebound.

Stocks to Watch

• Large-cap export stocks favored by foreign investors, such as semiconductors and autos — These are the industry sectors that typically draw the first wave of buying once foreign net buying resumes, and they likely sat at the center of order flow in this early-rebound phase.
• Small- and mid-cap theme stocks on KOSDAQ with high retail investor exposure — These see concentrated retail trading due to their large swings on both the downside and upside, but their high volatility also makes them prone to return erosion from stop-losses and re-entry.
• Large-cap KOSPI stocks with heavy passive-fund exposure — These benefit structurally from mechanical buying at index-rebalancing points, which captures bottom-buying timing more precisely than human investors can.
• The securities sector as a whole — As trading value rises during periods of sharp swings, this is a favorable short-term environment for brokerage fee income.

Risk Check

• If the cause of this decline differs from the COVID-era crash, the strength of foreign buying and the durability of the rebound could also differ.
• Whether foreign net buying marks a trend reversal or merely short-term, trading-oriented bottom-fishing can only be confirmed by supply-demand (order flow) data over the following days.
• If the KRW/USD exchange rate rises again, the burden of currency losses on won-denominated assets could grow for foreign investors, potentially reversing their buying.
• It would be an oversimplification to conclude from retail investors' lower returns that retail trading strategies themselves need to change.

Bottom Line

Foreign investors earned double what retail investors did not because they had more information, but because they applied a different buying standard — and the fact that this gap has repeated once again is reason enough to watch foreign supply-demand (order flow) data to confirm whether the rebound has staying power.

FAQ

Why do foreign investors achieve higher bottom-fishing returns than retail investors?

Foreign investors buy only after first confirming whether earnings outlooks and valuation multiples still have further room to fall, rather than reacting to the size of the price decline itself. Retail investors often treat the decline itself as the buy signal, which tends to delay their entry in the early stage of a rebound.

Did foreign investors also outearn retail investors during the COVID crash?

Yes. Foreign investors also achieved higher returns than retail investors through bottom-fishing during the 2020 COVID crash, so the return gap seen in this recent bout of sharp swings is not a new phenomenon.

What should retail investors watch to achieve returns closer to those of foreign investors?

A good starting point is to check whether earnings outlooks and valuations still have further room to be cut, rather than focusing on the size of the decline. In addition, holding steady without dumping shares early amid volatility in the early stage of a rebound is a key factor in narrowing the return gap.

This article is automatically summarized and analyzed based on the original news report. View original (Maeil Business Newspaper Securities)