Increased Stock Market Volatility Phase, Will Individual Defensive Strength Be Maintained?

[Asia Economy Reporter Song Hwajeong] As stock market volatility increases, attention is focused on whether the individual investor demand that has been defending the market can continue. The reduction of bank credit loans and the lowering of major shareholder requirements are cited as risks to individual demand.

According to the Korea Exchange on the 30th, since the beginning of the year, individuals have purchased 45.3536 trillion won in the KOSPI market. On the other hand, foreigners and institutions sold 27.4117 trillion won and 20.8680 trillion won, respectively. An So-eun, a researcher at IBK Investment & Securities, analyzed, "The role of individual demand, which rapidly increased after the COVID-19 pandemic, can be seen as defending the stock market decline," adding, "The scale of net purchases also shows that individuals played a significant role in defending the stock market."

The defensive role of individual demand in the stock market is becoming more important. This is because the inflow of foreign funds, which massively exited this year, has not yet continued as a trend, and the expansion of stock market volatility is inevitable due to various external risks. The problem is that there are emerging concerns even for individual demand, which should play a defensive role. One of these is the reduction of total credit loans by banks. Researcher An said, "Risk management for credit loans, which rapidly increased under accommodative liquidity conditions after the COVID-19 pandemic, has begun," adding, "Major commercial banks are taking measures such as raising credit loan interest rates for high-credit borrowers and reducing preferential loan conditions."

However, the impact of credit loan reduction on individual demand in the stock market is analyzed to be limited for now. Researcher An explained, "The steep increase in new individual fund inflows, as seen in the early stages of the COVID-19 pandemic, may weaken, but the amount of stock market standby funds already inflowed is still large." Although customer deposits have decreased compared to early September, they remain in the 50 trillion won range. The balance of Comprehensive Asset Management Accounts (CMA), where individual investors' stock market standby funds are heavily held, is also recording the highest level this year.

Another risk to individual demand is the lowering of major shareholder requirements for listed stocks. Starting from April next year, the market capitalization standard for major shareholders will be lowered to 300 million won for all stocks listed on KOSPI, KOSDAQ, and KONEX. Researcher An said, "Since the major shareholder determination date is at the end of December, large-scale selling by individuals to avoid being designated as major shareholders may occur until the end of the year," adding, "Legislation related to lowering major shareholder requirements can actually damage individual demand." In the past, a large-scale net selling pattern by individuals appeared at the end of the year just before the requirements were significantly lowered. Researcher An emphasized, "Especially this time, considering the large scale of the reduction in market capitalization standards and the large amount of individual funds flowing into the stock market this year, the impact of some individual funds moving to avoid major shareholder designation on the market could be greater than in the past. If individual demand is shaken, combined with year-end external risks, market volatility could increase further."