Bear or Bull — Retail Investors Raise Betting
Who could forget the historic day of July 25 when the key KOSPI index surpassed 2000 and ended up hitting 2004.22?
This long envisioned dream of entering the 2000-point era with over 1,100 trillion won in market capitalization is in part largely credited to ample liquidity.
And of course on that special day, the bull market thanks Moody's Investor Service's sovereign rating upgrade, low interest rates and stronger-than-expected economic growth in the second quarter.
Analysts then were saying goodbye to the ``Korea Discount'' for sure, and welcoming an all-new market with valuable stock prices. After all, the stock market of the KOSPI and the Kosdaq achieved one of the world's 10th highest growth rates.
What could go wrong from here? Corporate balance sheets were improving, exports rising and the GDP growth forecast was rosy.
But when things were beginning to look brighter, storm clouds appeared over the market.
When it rains, it pours
A steep rise is bound to have steep corrections going forward, analysts said.
Foreign investors, who accounted for 35 percent of the total stock investments, kept selling off their shares, taking advantage of the fast market growth. Like any investor, it was time to yield profits from the rising stock prices.
A heavy storm came though catching most market meteorologists off guard, despite being warned early this year.
The U.S. subprime lending turmoil tumbled every major bourse across the world and global investors ran for cover.
The stock market suffered its biggest daily plunge on August 16, losing 126 points to 1691.98, one of the biggest falls in the world. Some 170 trillion won in market cap vaporized in half a month since the market soared over 2000.
The U.S. Fed stepped in, pouring billions of dollars into the credit market in an effort to revive investor sentiment. Government agencies and financial regulators here repeatedly gave assurances that the financial market was immune to the U.S. subprime and credit problems.
But it wasn't until the Fed slashed its key interest rate on loans to banks that global bourses rallied. Seoul stocks, for one, posted their biggest single day gain of more than 90 points after the Fed's surprising overnight move.
In spite of the rocky roller coaster ride since late-July, of all the investors on the market, retail investors were the most cool headed.
Bear or bull, individual investors have certainly been playing a major role in the stock market.
Funds Fun for All
On the day of the single biggest fall, although retail investors unloaded shares worth 694 billion won, the second highest sell off, their money continued to steadily flow into funds investing in domestic equities.
According to the Asset Management Association of Korea, a total of 307 billion won went into stock funds on August 16, the day hit by the deepening subprime woes.
``The investment pattern has certainly changed over the last two years,'' said Kim Jae-jun, branch manager of Woori Investment & Securities in Eunpyeong-gu. ``We see an average of 200 billion won going into equity funds a day. We can definitely see the movements to the stock market from real estate.''
Serving almost 20 years in the securities industry, Kim added that he has never seen anything like this with so much interest in investing in stocks.
``In the old days, people sold and bought shares depending on the fluctuation of the index. But nowadays, they seek long-term investment gains through funds,'' said Kim.
Tightening regulations on real estate investment has indeed led investors to stocks, but Kim said that people have begun to construct and diversify their investment portfolios with more wisdom and knowledge learnt from past experiences.
High Tech Brings Active Investment
The advancement of information technology has also led individual investors to become more informed about which stocks to invest in via computers at home.
``I've learned to be patient especially when it comes to investing in stocks,'' said Park Myong-soon, a long-time equity investor, giving an example of her losses in the past with shares of Samsung Heavy Industries whose price now reaches above 44,000 won from about 4,400 won 10 years ago.
With accessible stock information online and offline, Park said she closely watches foreign investment patterns with regard to corporations and reads online news journals on equity investment whenever she can.
The development of technology has also made the securities industries downsize their electronic boards at branches and set up more computers for customers.
But still, a large number of customers crowd in front of the boards at branches to check on the market action, seeking consultations as they open up cash management accounts (CMAs), which offer higher interest rates of 5 percent on average than banks' demand deposit accounts with an annual rate of 0.1 to 0.5 percent.
Analysts are expecting a great exodus of bank customers to brokerage firms' stock accounts as more and more people are preparing to expand their financial assets, accounting for 20 percent of total assets, which is lower than Japan's 55 percent and the U.S.' 36 percent.
``We see an average of five to ten CMAs opened here a day particularly by salaried workers in their 30s,'' said Kim of Woori Investment & Securities. ``I believe 20 percent of bank customers will immediately flock to securities companies as soon as the Capital Market Consolidation Act take effect in 2009.''