[Desk Column] The Illegitimate Child of a Bull Market: Sudden Poor

[Asia Economy Reporter Jeon Pil-su] "I am a sudden pauper."

On the day the KOSPI stormed past 3000, a friend posted this in our group chat. I had heard of "sudden rich," but "sudden pauper" was a new term to me, so I asked back skeptically what nonsense that was. The friend explained, "Don't you know sudden pauper? It refers to non-homeowners who have become relatively poorer due to the rapid rise in apartment prices."

People who became sudden paupers because of real estate are now excitedly trying to avoid being sudden paupers in the stock market. The KOSPI, which had fallen to the 1400s last March, easily surpassed 3000 this year. Although the real economy experienced negative growth for the first time since the 1998 IMF bailout due to COVID-19, the stock market saw record gains.

Moreover, the fact that the driving force behind this rise is individual investors known as "Donghak Ants" has made those who had previously avoided stocks as risky assets even more anxious. Beyond rumors of "someone made this much money," actual statistics show the dazzling performance of individual investors. Last year, individuals net bought 49 trillion won in the KOSPI market alone, leading the stock market's rise. This year, in just 8 trading days, they net bought over 8.7 trillion won. Stocks heavily purchased by individuals, such as Samsung Electronics, Hyundai Motor, and LG Chem, also saw sharp gains.

Thanks to this aggressive investing and stock market boom, individuals' financial assets have also increased significantly. According to the fund flow data released by the Bank of Korea last week, as of the end of September last year, out of 4325 trillion won in personal financial assets, stocks accounted for 853 trillion won, which is 131 trillion won more than at the end of 2019. Considering the KOSPI was in the 2300s at the end of September last year, it can be estimated that individuals' stock assets increased by more than 30%.

Given this situation, those who did not invest in stocks and became sudden paupers are bravely jumping into the stock market. An acquaintance reportedly tried for over an hour to open an online securities account but failed. Elderly people unfamiliar with online systems often rush to securities firms' branches, creating scenes of lining up at counters.

In response, securities firms are issuing rosy forecasts one after another. Samsung Electronics, which surpassed 60,000 won just two months ago, has now exceeded 90,000 won, prompting securities firms to competitively raise their target price from 90,000 won to 120,000 won. If it breaks through 120,000 won, they might raise it to 150,000 won. Judging by the current mood, Samsung Electronics reaching 100,000 won seems only a matter of time, and it is indeed difficult to predict how far the KOSPI will rise.

The problem is that the gap between the real economy and stock prices has widened excessively due to the rapid stock price surge over the past year. At the end of last year, the KOSPI's market capitalization was 1981 trillion won, surpassing the nominal Gross Domestic Product (GDP, estimated at 1913 trillion won) for the first time ever. The ratio of stock market capitalization to nominal GDP is called the "Buffett Indicator," and it is generally considered that stock prices are overvalued when this exceeds 100%. As of the end of last year, the Buffett Indicator was 103%. Although the bull market continues due to liquidity, the downside risk has also increased accordingly.

Before rashly chasing stocks to avoid becoming a sudden pauper, it is time to review these risks. Sir John Templeton, a respected master of value investing, said, "A bull market is born in pessimism, grows in skepticism, matures in optimism, and dies in euphoria."