A view of the securities district in Yeouido, Seoul.
Park, a housewife in her 60s, has lately been quick to change the channel whenever stock-related news comes on television. After joining the mutual-fund boom in the mid-2000s and struggling through the financial crisis, she stuck to fixed-deposit savings for more than 15 years. She began investing in domestic stocks in April this year after an acquaintance said they were earning 100,000 won a day through day trading. But when the Korean market plunged last month and cut her principal in half, she sold all her domestic holdings and shifted to a long-term, installment-based investment in a product tracking the U.S. Standard & Poor’s 500 index. “Rather than agonizing over domestic stocks, I think I’ll feel more at ease putting money each month into a U.S. index with a proven long-term upward trend,” Park said with a sigh.
After the domestic market plunged last month and became range-bound this month, individual investors are showing signs of a full-fledged exit from the local market. This month in particular, they have been rebuilding their portfolios mainly around U.S. benchmark index products, while direct investment in the U.S. market, subdued for a time, is reviving. Some in the market expect that the exodus of individual investors, worn out by the wide swings and corrections in the Korean stock market, could continue for some time.
According to the financial investment industry on the 21st, moves by individual investors leaving the local market and turning to overseas investment are being detected across the board. The first notable shift is in portfolios. According to Koscom’s ETF CHECK, four of the top five stocks that individual investors bought on a net basis this month — 80% — were U.S. index products. Individual investors concentrated their purchases on TIGER U.S. S&P 500 (641.8 billion won), KODEX U.S. Nasdaq 100 (426 billion won), KODEX U.S. S&P 500 (352.3 billion won) and TIGER U.S. Nasdaq 100 (294 billion won). Last month, four of the top five ETFs were single-stock semiconductor leverage products tied to Samsung Electronics and SK hynix, along with a Kosdaq 150 leverage product and a KOSPI index product — a sign that investor sentiment toward the local market is cooling.
Conversely, the scale of U.S. stock trading by “seohak ants” — domestic investors who invest in U.S. stocks — is clearly rising. According to the Korea Securities Depository’s Seibro system, net purchases of U.S. stocks reached $822.4 million as of the 19th of this month. Although August is not yet over, that figure is close to June’s net purchases of $633 million. U.S. stock trading showed net selling in April ($468.9 million) and May ($939.8 million), before turning to net buying in June and surging from last month ($4.6424 billion). The value of U.S. stock holdings rose to $185.77587 billion, up from $171.4658 billion the previous month. For new investors, the decline in the won-dollar exchange rate is also cited as a factor that could heighten interest in the U.S. market. The won-dollar rate closed at 1,386.5 won, down 6.1 won, staying in the upper 1,300-won range.
The sharp drop in domestic trading value and the slowdown in listed-stock turnover can also be read as signs of waning interest in the local market. This month, the average daily trading value in the domestic stock market (combining the KOSPI, KOSDAQ and Konex) was 32.9733 trillion won, effectively shrinking by nearly half from June’s 60.3607 trillion won. Listed-stock turnover, which stood at 22.35% in June, fell to 19.56% in July and 11.99% this month. A lower turnover indicates that trading and the changing of hands in stocks are less active. Net purchases by individual investors on the main bourse also fell sharply, from 42.4005 trillion won in June to 5.3715 trillion won in July and 2.7468 trillion won in August.
In particular, the extreme volatility the market displayed after the launch of single-stock leverage ETFs added to investor fatigue and is analyzed as a factor that lowered the appeal of investing in the local market. According to the Korea Exchange, KOSPI sidecars have been triggered a total of 49 times so far this year (24 on the buy side and 25 on the sell side), 43% of them concentrated in July (six buy-side and nine sell-side) and August (three buy-side and three sell-side). Adding the 32 times on the KOSDAQ (18 buy-side and 14 sell-side), the total reached 81 for the year. A comparison of returns against major countries’ benchmark indexes also shows the KOSPI’s decline was the steepest. Last month the KOSPI fell 22.19%, a weaker return than Japan’s Nikkei 225 (-8.14%), Taiwan’s Taiex (-6.52%), the U.S. Nasdaq (-3.20%) and the U.S. S&P 500 (-0.13%). The KOSPI has failed to close above the 7,000 mark for nearly a month since the 23rd of last month. The KOSDAQ, which broke through the 1,200 mark in April this year, plunged to 801.94, barely holding the 800 line.
The securities industry is closely watching the Korean market’s movements, because outflows of individual investors could grow further if range-bound trading persists. Park Yeon-joo, head of the research center at Mirae Asset Securities, said sentiment has been dampened because volatility grew excessively in the first half, adding that the market is in the process of digesting that volatility.