Korea’s retail investors buy stocks on dips in turmoil

South Korea’s individual investors took the recent turmoil in stock markets as an opportunity to buy shares at home and abroad on dips, betting on a rebound amid the looming interest rate cuts.

Domestic retail investors purchased a combined net 3.8 trillion won ($2.8 billion) in the Seoul stock markets and $346.2 million in overseas markets from Aug. 1 to 9, according to the Korea Exchange and the Korea Securities Depository on Monday. By contrast, in the first seven months of the year they shunned local shares, dumping a net 9.3 trillion won.

Individual investors switched their stance by absorbing domestic blue chips and battered names such as Samsung Electronics Co. when the Kospi tumbled on fears over a possible US recession. They bought net 3.1 trillion won of the world’s top memory chipmaker, 624 billion won of its smaller rival SK Hynix Inc., 219 billion won of the cosmetics giant Amorepacific Corp., 132 billion won of the country’s No. 2 automaker Kia Corp. and 111 billion won of the online behemoth Naver Corp.

Foreign investors and domestic financial institutions sold a net 2.2 trillion won and 1.9 trillion won, respectively, from the Seoul bourses over the nine days, pushing the benchmark Kospi down by 6.6%. The index suffered its worst day since the 2008-09 global financial crisis on August 5 with an 8.8% loss.

Korean retail investors also rushed to buy overseas stocks, especially leveraged exchange-traded funds (ETFs), which use financial derivatives and debt to amplify the returns of underlying assets. Their top picks included the Direxion Daily Semiconductor Bull 3X Shares (SOXL), which seeks daily investment results, before fees and expenses, of 300%, or 300% of the inverse of the NYSE Semiconductor Index's performance.

CALM AFTER STORM

Such buying amid the market turmoil came after individual investors enjoyed profits from buying in the dips back when COVID-19 haunted global markets.

The Kospi on March 19, 2020, dropped 8.4% to 1,457.64 as global financial markets experienced a bloodbath amid fears about the pandemic. Some Korean individual investors bucked the trend, however, by aggressively adding shares sold by foreign and institutional investors.

The index turned north to end 2020 with its highest close for the year of 2873.47. Retail investors bought a net 33 trillion won from March 19 to Dec. 30, 2020, while foreigners and domestic institutions sold a net 10.7 trillion won and 23.1 trillion won, respectively, according to the Korea Exchange.

Samsung Electronics preferred shares, Hyundai Motor Co. and Naver were individuals’ top picks during that period. Shares in the country’s top automaker surged 175.4%, while Samsung’s preferred shares and Naver jumped 72.4% and 92.7%, respectively.

INTEREST RATE CUTS

Stock market sentiment has recently improved as the US Federal Reserve and the Bank of Korea are expected to slash interest rates in the coming months.

Korean retail investors bought a net 1.1 trillion won in bonds at home and abroad from Aug. 1-9 based on such expectations.

Liquidity also increased, with the cash and deposit balances of households and non-profit agencies up 61.5 trillion won to 2,472 trillion won as of the end of the first quarter from end-2023, according to BOK data.

Analysts stayed cautious over local stock markets, given the risks of a US recession and the global unwinding of the yen carry trade, as well as the intensifying geopolitical tensions in the Middle East, although the Kospi recovered some earlier losses on demand from retail investors.

The market became more volatile with the Kospi 200 Volatility Index at 24.49 on Monday. The index was higher than 20 on only five days in July.

“The recent stock markets are unusually volatile,” said Yeom Dong Chan, a quantitative analyst at Korea Investment & Securities Co. “Investors are better to take a conservative stance ahead of the release of macroeconomic data.”

Write to Ik-Hwan Kim and Han-Shin Park at lovepen@hankyung.com
 
Jongwoo Cheon edited this article.