Koreans' stock investment losses hurt consumption
People shop in Myeongdong, Seoul, Sept. 13. Yonhap
Seo Hyun-mi has shelved her year-end trip to Tokyo after suffering heavy losses on her stock investments. The 40-year-old office worker, who bought SK hynix shares months ago at around 2.5 million won ($1,881) per share, is now sitting on a loss of roughly 50 percent.
"Everyone seemed to be encouraging people to buy stocks. Brokerage reports were overwhelmingly positive, government officials were urging people to invest in the stock market and media coverage of memory chips was upbeat as well," Seo said, explaining what prompted her to invest.
With the stock market unlikely to recover quickly, Seo plans to cut spending for the foreseeable future.
"You need cash on hand to weather this kind of market, whether it's to cover losses from selling stocks or to buy more shares at lower prices," she said.
The belt-tightening mood has spread to social media.
An image titled "Things stock investors should start doing today" has been circulating online with tongue-in-cheek money-saving tips, from deleting food delivery apps and washing clothes by hand to looking for loose change on the street.
Household funds poured into stocks in the first half of the year, fueled by the artificial intelligence stock rally and the government's push to shift investment from real estate to equities.
According to the Bank of Korea, households and nonprofit organizations invested 101.6 trillion won in stocks and investment funds in the second quarter, up from 61.4 trillion won in the first — a jump of more than 40 trillion won.
But much of that money is now tied up in stocks that have tumbled in the second half of the year.
KOSPI plunged from 9,385.59 on June 19 to 5,262.77 on July 29 before rebounding above 7,000. The benchmark encountered another setback last week, sliding for seven straight sessions to close at 5,554.22 on Thursday.
"Korea's economy is becoming increasingly polarized, and domestic consumption has already been weak," said Jeong Se-eun, an economics professor at Chungnam National University. "A stock market downturn could put further pressure on consumer spending."
Retail sales are already showing signs of weakness. According to the Ministry of Data and Statistics, retail sales rose 0.1 percent in May and 2.7 percent in June before falling 2.6 percent in July and another 1.8 percent in August.
Investors who borrowed money to buy stocks are particularly vulnerable, Jeong said, as falling share prices could trigger forced selling and compound their losses, leaving them with even less money to spend.
That risks setting off a vicious cycle.
Businesses reliant on domestic demand, such as restaurants and retailers, could see sales fall as consumers cut back on spending. Persistent weakness could prompt businesses to curb hiring and investment, putting further pressure on household incomes and consumption.
"Young people are particularly hard hit by falling incomes and shrinking job opportunities, making policies to support them all the more important," said Kang Sung-jin, an economics professor at Korea University and president of the Korean Economic Association.