[High Kick Korean Stock Market] Individual Investors Going on Overseas Trips

Total Overseas Stock Settlement Amount Reaches 76 Trillion Won
Already Surpasses Last Year's Total
Focus Shifts to US IT and Bio Companies

[Asia Economy Reporter Oh Ju-yeon] As the global stock market fluctuates due to the novel coronavirus infection (COVID-19), the number of individual investors turning their attention to overseas stocks has rapidly increased. This is because, based on experience, the domestic stock market has not broken out of the box range known as Boxpi (Box Range + KOSPI), so under similar conditions, overseas stocks are expected to have a higher rate of increase.

According to the Korea Securities Depository on the 19th, the total settlement amount (purchase + sale) of overseas stocks by domestic investors from the beginning of this year until the 18th of this month reached $62.82885 billion (75.9726 trillion KRW), surpassing last year's total overseas stock settlement amount of $40.98539 billion (49.5595 trillion KRW). If this trend continues in the second half of the year, the scale of overseas stock settlements this year is expected to double last year's, approaching 100 trillion KRW.

The scale of overseas stock settlements was only $12.56086 billion (15.1861 trillion KRW) in 2016, but it has rapidly grown since then. In 2017, it was $22.71417 billion (27.4614 trillion KRW), and in 2018, it increased to $32.57042 billion (39.3776 trillion KRW).

The recent surge in overseas stock investment was triggered by the sharp decline in global stock markets, including the U.S., due to the spread of COVID-19. Individual investors, seeking buying opportunities at the bottom, entered not only the domestic but also overseas stock markets in large numbers.

The main focus of their purchases has been the United States. Overseas stock investors have traded U.S. stocks worth a total of $55 billion from the beginning of this year until the 16th. This accounts for 87.58% of the total overseas stock trading volume this year. During the same period, trading volume for Chinese stocks was only $1.499 billion (2.39%), and Japanese stocks were $1.49 billion (2.23%).

The reason for the concentration on U.S. stocks is reflected in the returns. According to Kiwoom Securities, while the KOSPI has risen 120% since 1990, the S&P 500 index has increased by about 740%. Compared to other overseas countries as well as domestically, U.S. stocks offer higher profit appeal. This is also evident in recent fund returns. According to a survey by financial information company FnGuide, the average return of North American funds over the past month was 8.20%, whereas Chinese funds averaged only 4.45%. In the three months before the COVID-19 pandemic was declared, China recorded a return of -0.44%, while North American funds posted 6.95%.

Since COVID-19, the non-face-to-face (untact) and bio industries have been leading the stock market, largely because these innovative companies are mostly listed on the U.S. stock market. The market capitalization share of FAAMG (Facebook, Apple, Amazon, Microsoft, Google) in the U.S. stock market has increased from 10% five years ago to 22% currently. The securities industry believes these stocks are likely to remain leading stocks driving the market even after COVID-19. The pandemic has accelerated the shift to digital, which is expected to lead to structural changes in the stock market going forward.

Consequently, domestic investors investing in overseas stocks are also concentrating their purchases on these stocks. Among the top 50 traded stocks, 9 out of 10 are companies listed on the U.S. stock market. The most traded stock this year is U.S. electric vehicle company Tesla, with a trading volume of $3.565 billion. Microsoft ranks second with $2.558 billion traded, followed by Apple ($2.374 billion) and Amazon ($2.274 billion).

Interest in overseas stocks is expected to increase further in the future. Based on abundant liquidity in the market, the global stock market is expected to continue its upward trend. Considering the acceleration of the untact culture and the rapid progress of the 4th Industrial Revolution through IT infrastructure development, experts analyze that companies that have already secured market leadership will continue to attract attention.

Jung Na-young, a researcher at Kiwoom Securities Global Research, said, "The U.S. market has recorded stable yet high returns compared to major country representative indices," adding, "Even at the individual stock level, U.S. companies excel at achieving sustainable growth by balancing future growth value (innovation) and current shareholder value (dividends, share buybacks)."