[Asking the Wealthy Digital Generation]① Korean Stocks Undervalued... 36% Say "Will Increase Value Stocks"

Samsung Securities Digital High-Net-Worth Survey of 624 Participants
This Year’s ‘Boxpi’ Outlook... “KOSPI 2400-2600” 42.8%

Han Sejin, a wealthy individual in his 50s residing in Seoul, starts his day every morning by listening to the stock market update from a 'Virtual Analyst' (a virtual human created by training artificial intelligence (AI) technology on the appearance and voice of an analyst). When he has investment-related concerns, he resolves them through the digital client-dedicated service called 'Digital PB (Private Banker) consultation.' The funds he manages amount to about 1 billion KRW. His investment portfolio is diverse, including not only stocks but also overseas stocks and bonds, among others, with a well-diversified approach.

His investment decisions are made at the tip of his thumb. He does not visit branches. This year, he expects an investment return rate of around 10%. Even when the market was unfavorable last year, he recorded a return rate of over 5%. Judging that Korean stocks are highly undervalued and attractive, he plans to increase his stock investment ratio. He is 'picking up' stocks whenever the index falls. However, as market volatility is increasing due to turmoil in the U.S. financial sector, he is currently conducting asset rebalancing (periodically preparing a financial statement of financial assets and readjusting investment destinations).

'Wealthy Digital Tribe' Investing Over 100 Million KRW Online

High-net-worth individuals who invest using only their thumbs, also known as the 'Digital Wealthy Class' (high-net-worth individuals + thumb users), are emerging as a new major customer group in the investment market. According to a recent survey conducted by Asia Economy on 624 digital wealthy individuals commissioned by Samsung Securities, the average profile of these individuals as of 2022 is a 54-year-old male residing in Seoul, with an average investment asset of 420 million KRW. Their asset sizes are distributed as follows: 100 million to 1 billion KRW (283 people, 45.4%), over 10 billion KRW (127 people, 20.4%), 1 billion to 3 billion KRW (116 people, 18.6%), and 3 billion to 10 billion KRW (98 people, 15.7%). The most common age groups were those in their 50s (230 people, 36.9%) and 60s (226 people, 36.4%).

So, what kind of investment strategies are the 'Wealthy Digital Tribe' like Han Sejin employing? The survey results show that they have shifted to a conservative investment strategy at the current point in time. In a survey conducted earlier this year on 657 high-net-worth individuals by Asia Economy, 6 out of 10 said they would increase their investment ratio in domestic and foreign equity assets. However, due to market turbulence caused by the consecutive bankruptcies of Silicon Valley Bank (SVB) and Signature Bank, they have turned more conservative. Accordingly, 49% (306 people) of the digital wealthy said they plan to increase or newly invest in domestic and foreign equity assets, while 51% (318 people) said they do not.

Korean Stocks Attractive... Interest Also in Domestic and Foreign Bonds

However, nearly half of those who want to increase their stock investment ratio this year chose Korea (143 out of 306 people, 46.7%) as the country, seeing high undervaluation appeal. Following Korea, the United States (95 people, 31%), where over 90% of overseas investments are concentrated, was selected.

Stocks were also regarded as the most effective investment means for asset growth. 31.7% (198 people) viewed domestic and foreign equity assets as the most effective means for asset growth. Next, 27.4% (171 people) chose domestic and foreign bonds. Last year, high-net-worth individuals flocked to bonds, and a similar trend is expected this year. Real estate, which has dropped in price, and gold, which has been soaring, were seen as attractive by 15.7% (98 people).

Although they viewed the Korean stock market as undervalued, they forecast the index to remain in a box range this year. 42.8% (267 people) expected the KOSPI upper limit to be 2600. They anticipated the KOSPI to stay between 2400 and 2600. 27.7% (173 people) predicted a box range of 2200 to 2400. The proportion expecting 2600 to 2800 was 17.3% (108 people). The lower bound of the stock market was viewed relatively positively. Only 1.6% (10 people) expected it to fall below 2000. The range from 2000 to 2200 was only 5.4% (34 people).

With concerns about economic recession and a frustrating stock market with increased volatility, how do they plan to improve returns? The answer is value stocks and growth stocks. Among the 306 people who said they have investment plans, 113 (36.9%) chose value stocks, and 98 (32%) chose growth stocks as stocks they plan to increase their investment in. Growth stocks have excessively fallen since last year due to rapidly rising interest rates. Value stocks are popular as a safety net during economic recessions. Dividend stocks (81 people, 26.5%), which provide steady dividends, ranked third.

High-net-worth individuals who see bonds as promising showed interest in corporate bonds and government bonds. Among 334 people who said they have bond investment plans, 26% (87 people) said they would increase their investment ratio in high-interest domestic corporate bonds. 22.5% (75 people) chose government bonds. Next, 20.7% (69 people) selected public and local bonds.

The top issue expected to affect investments this year remains the interest rates of major countries (216 people, 34.6%). Next was the burden of high inflation. Persistent inflation ranked second with 31.1% (194 people). 11.9% (74 people) cited corporate liquidity risk.

They do not appear optimistic about market prospects. However, 32.5% (203 people) expect an investment return rate of 10-15% this year. Next, 19.7% (123 people) expect 5-10%. Then, 19.6% (122 people) expect 15-30%. Only 30 people (4.8%) expect less than 3%.

Yoon Seokmo, head of Samsung Securities Research Center, analyzed, "As major countries' stock markets continue to weaken, high-net-worth individuals are focusing on the so-called 'BTS (Buy The Sinking spell)' strategy, which aims to buy at low points when the market shakes." He added, "The reason for their aggressive stance during the volatile interest rate hike period is their belief in long-term investment." He further stated, "As tightening enters the final stages, there is a possibility of a turning point in the financial market. It is worth considering the turning point as an investment opportunity, especially focusing on sectors that have experienced significant declines." He advised that when the market experiences fluctuations in April, it is worth responding by concentrating on representative stocks in semiconductors, automobiles, and software.

Temporary Corrections Should Be Used as Buying Opportunities

Domestic stock market experts also agree that corrections should be used as buying opportunities. Lee Jaeseon, a researcher at Hyundai Motor Securities, said, "Jerome Powell, Chairman of the U.S. Federal Reserve (Fed), hinted that short-term priorities are financial market stability and medium-term priorities are price stability." He added, "Considering that the Fed has left open the possibility of a flexible policy stance if credit tightening becomes prominent, the stock market's lower bound will gradually become more solid."

Lee Kyungmin, a researcher at Daishin Securities, explained, "Expectations of interest rate cuts fading may stimulate volatility in global stock markets including the KOSPI." However, he added, "With expectations of China's economic recovery and the semiconductor industry's bottoming out, the strategy of increasing weight during corrections remains valid." He further said, "Fiscal and policy momentum is flowing in, and sectors such as semiconductors, internet, secondary batteries, electric vehicles, renewable energy, and defense, which can expect earnings momentum next year, are promising. There will be opportunities to buy at lower prices than current levels."

Seo Sangyoung, head of the Media Content Division at Mirae Asset Securities, also suggested a strategy of preemptive buying centered on technology stocks such as semiconductors, saying, "Expectations of the economic bottom may emerge in the second half of this year." Kim Daejun, head of the Investment Strategy Team at Korea Investment & Securities, advised, "Due to the banking sector crisis, lending capacity may significantly decrease, so it is necessary to invest in high-quality companies with easy cash flow." He also recommended, "It is necessary to simultaneously target defensive stocks including IT stocks covering hardware and software, food and beverage, and telecommunications."