Stock markets resembling gambling pits
By Kwaak Je-yup
Recent movements in the market show worrying signs of high-risk trades by individual investors, according to regulators.
Figures from the Financial Supervisory Service (FSS), the Korea Exchange (KRX) and the Korea Financial Investment Association (KOFIA) Friday all point to these small investors, self-deprecatingly nicknamed “ants,” frantically moving between various products, markets and strategies, looking for get-rich-quick trades without success.
As the country’s financial trade has a disproportionately large amount of capital coming from individuals on their computers at home, authorities are concerned that this latest tendency not only increases volatility but also possibly pushes many of the ill-informed ants into bankruptcy.
There are few cards on the table, however. The ongoing controversy over politics-themed stocks has shown that whatever the government tries to enforce, individual investors will not budge. When last week the FSS tried to crack down on this arbitrary rumor-fueled flash investing strategy, it met vehement resistance from the very people it meant to protect, who demanded their freedom to invest the way they wanted. FSS and KRX online bulletin boards have been flooded with complaints since then.
Forming a complex web of online connections between them, sharing tips and rumors, individual investors respond with lightning speed to news, waiting to take advantage of any spark in particular shares and sell immediately after gains in value, due to whatever reason. The environment is obviously ripe for manipulation and scams.
The extremely short-term investment epidemic has spread to different markets, according to the latest data.
In the fourth quarter of last year, individual investors took up 37 percent of KOSPI 200 index futures transactions by value, up 10 percent from the year before. The figure rose into the 30s from the second quarter after stabilizing in the late 20s from 2010 to the first quarter of last year.
Forex margin trading, another derivatives vehicle, is completely dominated by ants, accounting for an astonishing 99 percent. The monthly trading volume went from $29.2 billion in the first quarter of 2010 to $50.5 billion in the same period a year later, and to $62.8 billion in the third quarter last year.
Korea is known to have more than 3 million individual investors, which take up 90-plus percent of the total equity trading volume on the two main exchanges, the KOSPI and KOSDAQ, often leaving their jobs for at-home trading. Now students are trying to earn pocket money and individuals are looking to supplement their pensions in this manner.
In 2010, the number of individual investors in their 20s jumped 42.3 percent from 239,000 in 2006 to 340,000 in 2010. Retired home traders, categorized as those 60 or over, were even more enthusiastic, making a 83 percent leap from 500,000 to 915,000 in the same period.