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Korea\u2019s Kospi, one of the most volatile markets among major economies this year, has turned into a tug-of-war between foreign and institutional investors versus retail traders, with foreigners trimming positions on profit-taking and bubble concerns while individuals absorb the equities.
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The showdown hit its peak on March 3, the first trading day after the breakout of the Iran war, during which retail buyers scooped up a net 6.88 trillion won ($4.6 billion) worth of stocks on the Korea Exchange, while foreign and institutional investors collectively sold off over 7 trillion won.
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This year alone through March 13, retail investors, roughly more than 14 million, net purchased 49 trillion won, while
\n\u00a0institutional and foreign investors sold net 23 trillion won and 33 trillion won, respectively, so far this year, fueling what some are calling a second round of the Donghak Ant Movement \u2014 a term coined during the 2020 pandemic to describe the wave of mass buying by individual investors.\u00a0The name draws a metaphor from the Donghak Peasant Movement in late 19th-century, portraying small individual investors \u2014 called \u201cants\u201d in Korean market slang \u2014 as ordinary people rising up against powerful elite and foreign influence.
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The total amount of equities individual investors purchased in less than three months into the year is comparable to the 54 trillion won that retail investors net purchased in an entire year in 2020 during the first round of the Donghak Ant Movement.
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Some argue that a market driven by individual investors is often hard to sustain. Stocks typically soar during rallies and plunge just as quickly during downturns, reflecting how fickle these investors can be compared to foreign or institutional investors, who trade according to portfolio allocations.\u00a0
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But economists say the current market is unfolding differently, as retail investors are encouraged to hold onto stocks long-term.
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\u201cWe are seeing a major shift in Korean household portfolios,\u201d said Kim Doo-un, senior analyst at Hana Securities, citing the government\u2019s efforts to lay the groundwork for long-term capital to flow into the stock market rather than into real estate, a traditional favorite of investors.
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At the root of the long-held belief that real estate was unbeatable was the idea that holding property for longer brought tax benefits, such as lower capital gains tax, depending on the holding period. But now many believe \u2014 based on the government\u2019s current policy stance \u2014 that property holding taxes could rise.
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In contrast, while stocks previously offered little incentive to hold them long-term, new tax benefits are being introduced that increase the longer the stocks are held, including a separate, lower tax rate on dividend income rather than subjecting it to comprehensive income taxation.
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\u201cSuch market-friendly policies are serving as a catalyst encouraging individual investors to adopt long-term investment strategies,\u201d Kim added.
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Specifically, policies that could boost stock prices as well as solid corporate earnings are driving retail funds into equities.
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\u201cThe key forces that are currently drawing individual funds into the stock market are strong corporate earnings, particularly in semiconductors \u2014 along with rising prospects in shipbuilding, defense and humanoid robotics \u2014 and market-friendly policies aimed at channeling money from real estate into equities,\u201d said Park Seok-hyun, an economist at Woori Bank.\u00a0\u00a0
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The government has introduced market-friendly measures, including mandatory cancellations of treasury shares within a year and plans to launch exchange-traded funds [ETFs] that track twice the performance of a single stock, like Samsung Electronics and SK hynix. But it has simultaneously imposed strict real estate policies to curb home purchases, such as significantly tightening mortgage lending and announcing plans to increase transfer income tax on owners of multiple homes when they sell their units.
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As the market environment changed, retail investors saw the recent plunge in equities as an opportunity to invest in Korean chipmakers. \u00a0
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\u201cI bet all the money in my account on the Kospi after the index nose-dived following the recent geopolitical tensions,\u201d said an office worker who wished to remain anonymous. \u201cI sold my U.S. stocks to buy Korean shares \u2014 especially chipmakers \u2014 during the latest bout of market volatility, adding more whenever the index fell. I was nervous, but confident they would bounce back on market-friendly policies, such as the planned introduction of leveraged ETFs tracking individual stocks.\u201d
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Another investor bought the dip in Korean stocks.
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\u201cMy heart sank after the index plunged following the outbreak of the war,\u201d said an office worker surnamed Park. She had bought Korean Air before the war and recently bought Samsung SDI, believing that demand for secondary batteries would soar as electric vehicles became more widely commercialized. \u201cI ended up buying more Korean stocks, viewing the drop as a temporary setback and an opportunity to buy before the market rebounds.\u201d
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Such unwavering confidence in the Korean stock market \u2014 fueled by a 76 percent surge in the Kospi last year and an additional 45 percent rise in the first two months of this year, with a bullish outlook toward 8,000 points \u2014 has even prompted individual investors to borrow funds to invest.
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According to the Korea Financial Investment Association, outstanding credit balances hit a record 33.7 trillion won on March 5, up nearly 3 percent since the start of the month, while forced liquidations relative to unsettled margin trades totaled 77.7 billion won on the same day \u2014 the highest in two years and five months.
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Customers wait for brokerage services at a local branch in Seoul on Jan. 26. [YONHAP]<\/p>\n
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Despite these market-friendly moves toward the stock market, foreign investors continue to have limited interest in Korean equities.
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\u201cA large portion of foreign capital is passive money that tracks market-cap weights. Given the Kospi\u2019s sharp surge this year, that structure could lead them to trim holdings rather than add more in a rising market. This suggests it will be individual, not foreign, investors driving the Kospi\u2019s recovery or any push beyond the 7,000-point mark,\u201d Park from Woori Bank added. \u00a0
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Beyond portfolio constraints, the won\u2019s recent swings against the dollar are also deterring foreign investors from entering the Korean market, according to Won Jai-hwan, a finance professor at Sogang Business School. \u201cTo attract foreign investors, exchange rate volatility must be stabilized, as fluctuations can undermine the returns they earn from stocks,\u201d Won said.
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The won traded at 1,499.2 against the dollar on Monday, sliding to its weakest level in 17 years since March 12, 2009, when the currency stood at 1,496.5 per greenback during the global financial crisis. <\/p>\n