Ant-Led Korean Stock Market... "Volatility Will Decrease and Foreigners Will Return"

Stock Ranking Rises as Financial Investment Tool... Simultaneous Increase in Net Purchase Amount and Deposit Balance
Evolving from Short-Term Trading to Mid-Long-Term Investment... "Lower Volatility to Attract Foreign Investors"
BBIG Position Remains Strong... Potential for Expanded Benefits to Related Stocks

[Asia Economy Reporter Minwoo Lee] Individual investors' strong buying momentum is leading the domestic stock market. Unlike in the past, investment behavior is shifting from short-term to medium- and long-term focus, which is expected to reduce volatility and potentially attract foreign investors' buying as well.

According to the Korea Exchange on the 8th, the total net purchase amount by individual investors across the KOSPI and KOSDAQ markets reached 45.8327 trillion KRW as of the 7th of this year. At the same time, the balance of customer deposits, which can be seen as cash in individual investors' stock accounts, increased from 27.3933 trillion KRW at the end of last year to 48.8749 trillion KRW as of the 6th. Excluding changes in credit and unsettled transactions and sales settlements, the actual customer deposit balance is estimated to have increased by about 14 trillion KRW this year alone. This means that new fund inflows are steadily continuing alongside record-breaking buying momentum.

◆Sophisticated Retail Investors...The Era of Reckless 'Day Trading' is Gone=Stocks are becoming a higher priority as a financial investment tool for individuals. This is because the interest rate on regular deposits has fallen to as low as 0.8%, and real estate, which was the main financial investment tool for the entire population, is also facing unprecedented uncertainty. Despite steadily falling loan interest rates, the increase in mortgage loans has stagnated, reflecting the same context. This environment is expected to lead to a structural change in the asset management market. Jung-hoon Seo, a researcher at Samsung Securities, said, "Individual behavior in the asset management market is likely to move from resistance to acceptance and then to seeking alternatives," adding, "The recent active participation of individuals in the stock market may well be just the beginning."

Although individuals are actively participating in the stock market, it is interpreted that their investment style is shifting from simple short-term to medium- and long-term forms. The deposit turnover rate is calculated by dividing market trading volume by customer deposits. A higher figure means more trading with less money. Recently, the deposit turnover rate has been around the 40% level based on the 20-day moving average (MA), which is lower than the 80% level seen in 2007 when individual investors were very active. Researcher Seo explained, "This suggests that individual investors' investment behavior has partially shifted from short-term to medium- and long-term," adding, "The record high inflow of individual investors into the KOSPI market in 20 years can also be seen as an expansion of preference from small- and mid-cap stocks to large-cap stocks."

In fact, individual net purchases of the seven representative 'BBIG' stocks (LG Chem, NAVER, Samsung Biologics, Celltrion, Samsung SDI, Kakao, NCSoft), which have driven the KOSPI index this year, amount to about 1.7 trillion KRW. This exceeds foreign investors' 800 billion KRW and institutions' 1.1 trillion KRW. This is why it is analyzed that individual investors are the main driving force behind the leading stocks in the market.

◆"Lower Volatility...Foreign Investors Will Return"=There is a forecast that the evolved participation of individual investors in the market could significantly reduce stock market volatility in the future. This means that individual investors, who have ample funds, can absorb the mechanical selling by foreign investors who mainly use algorithmic trading techniques. Therefore, individual investors, who were vaguely considered peripheral market participants, should now be recognized as entities with considerable influence. Foreign investors, who had continuously sold, have also switched to buying since last month.

Researcher Seo said, "Considering the strengthening trend of a weaker dollar and clearer signs of global economic recovery, foreign investors' buying momentum is likely to continue," adding, "Traditionally, August is the vacation season on Wall Street in the U.S., so foreign investors' movements are expected to become more concrete after mid-August."

◆BBIG's Position 'Solid'...Expectations for Expanded Benefits to Peripheral Stocks=The position of 'BBIG' stocks is expected to remain solid going forward. Researcher Seo analyzed, "Considering not only the second-quarter earnings but also future prospects, the position of existing leading stocks is highly likely to remain firmly maintained," adding, "There are no alternatives, and liquidity in the stock market is abundant, so although intermittent price corrections may occur, it is unlikely that declines will damage the overall trend."

There is also an analysis that peripheral stocks could benefit. This is because some investors feel burdened by the prices of leading stocks. Seo said, "It is necessary to pay attention to the lower-ranked stocks within the BBIG sectors that have lagged in price increases," adding, "Also, stocks in neglected sectors that show confirmed earnings momentum could be suitable alternatives when economic recovery issues arise."