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Year of ants investors

Korea’s retail investors shed loser image, turn pandemic into bonanza

Dec 21, 2020 (Gmt+09:00)

The Kospi rises to fresh record highs on heavy retail buying.

In South Korea, as the saying goes, the stock market is at its peak if a swarm of individual investors go on a buying spree, often leading to heavy losses for them soon after.

Since the local equities market opened its door to foreigners in 1992, the main Kospi market and the junior tech-heavy Kosdaq have risen and fallen, mirroring the trading patterns of foreign investors, the most influential players on those bourses.

Retail investors closely followed foreigners’ moves, looking for direction. But in a significant deviation from past practices, they are having their own way in stock trading, heavily buying even as foreigners and local institutions engage in panic selling amid fears of a coronavirus-driven slowdown.


Individual investors, known as "the Ants" because of their weak influence and smaller stock holdings, have aggressively purchased blue chips such as Samsung Electronics Co. and Hyundai Motor Co. since March of this year, believing that “what’s fallen is bound to rise again.”

Now that the Korean markets are staging a quick rebound – the fastest among major economies in Asia – their newly acquired trading habits not only earn them higher returns, but also help them shed their image of “the usual losers.”

“Korean retail investors used to buy high and sell low for many years. But this year marks a monumental year for them as they have experienced a taste of success. They have gotten smarter,” said Kim Hak-gyun, head of research at Shinyoung Securities.

Retail investors attend an investment seminar held by The Korea Economic Daily, May 2019.

SHATTERED MYTHS OF ANTS’ BEHAVIOR

Analysts say their success has apparently shattered the myths surrounding individual investors, such as the market never moves up with many Ants on its back, or individuals buy on news and sell on rumors, as opposed to the traditional market adage "buy the rumor, sell the news."

Data from the Korea Exchange showed that, as of Dec. 18, Ants have purchased a record 64.72 trillion won ($58.9 billion) in shares on the Kospi, the Kosdaq and the Konex – a securities exchange exclusively for small- and medium-sized enterprises and venture companies – since the start of 2020. The shares had mostly been dumped by foreigners.

When foreigners bought a net 90 billion won in Samsung Electronics in mid-July on news that it may benefit from a delayed chip advancement process in rival Intel Corp., individuals sold the same amount to book profit.

On Nov. 30, foreigners sold a record daily volume of shares on the Kospi market, triggering a sharp fall in the benchmark index. On the same day, retail investors scooped up a record amount, betting on a rebound in the near future.

The heavy foreign selling was triggered by the changes in the MSCI Emerging Market Indices, which cut Korea’s weight by 0.3 percentage point. Korean individuals, however, moved in the opposite direction, believing it was systemic selling led by passive foreign funds tracking blue chips. In less than a half month, the Kospi rose 7% to an all-time high.

Boosted by steady individual buying, the Kospi has risen 90% as of Dec. 18 from the main bourse’s yearly low in mid-March, outperforming the Nasdaq’s 86% gain over the same period.

Retail investors accounted for 67.1% of all transactions on the Kospi market as of Dec. 18, up from 49.5% in January. On the Kosdaq market, they took up nearly 90% of transactions.

Graphics by Jerry Lee

ANTS' MYSTERIOUS TASTES

“The Ants have emerged as the biggest force on local bourses. There can hardly be a doubt that it is retail investors that move the markets,” said Korea Investment & Securities analyst Kim Dae-joon in a recent research report, “Mysterious individual investor tastes.”

Some local media jokingly dubbed the heavy buying by an army of small investors the "Donghak Ants Movement," a reference to the 19th-century "Donghak Peasant Movement," a peasant revolt against rich and foreign invaders.

Samsung Electronics topped the Ants’ most-favored stock of the year list with a combined purchase of 9.2 trillion won worth of the shares, followed by the tech giant's preferred stock, Hyundai Motor, Naver and Kakao.

Of top 10 shares purchased by retail investors, six outperformed the Kospi index, which has risen by more than a quarter so far this year. Celltrion Healthcare Co., listed on the Kosdaq market, was the best performer with its shares rising more than threefold this year.

DIFFERENT STATUS

Retail investors’ growing influence in the market has also rattled the nation’s big companies in their key business decisions.

LG Chem Ltd’s shares fell 11% in mid-September as individuals dumped its shares for two straight days on the company’s announcement that it would spin off its lucrative battery business.

The sharp share price fall forced LG Chem executives to hurriedly convene a conference call, where its CFO Cha Dong-seok promised to do whatever is needed to maintain shareholder value.

“Individual investors have now become influential players. If companies try to appease them by raising shareholder value, the Ants will emerge to provide support just like the Avengers,” said Jung Sung-han, a senior manager at Shinhan BNP Paribas Asset Management Co.

Write to Jae-Yeon Ko and Yun-Sang Ko at yeon@hankyung.com

In-Soo Nam edited this article.

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