Peter S. Kim is a managing director at KB Securities.
Gaming, gambling and stock trading
Peter S. Kim
By Peter S. Kim
The Korean stock market is leading a worldwide bull market with returns of more than 50 percent so far this year, which makes it the best performer in Asia, surpassing even China. Many are calling for a global "everything rally," where historically uncorrelated assets, such as equities, bonds, commodities and even cryptocurrencies, are rising together at a fierce pace. Significant investor attention has been on how President Trump is unleashing "animal spirits" with his call for aggressive rate cuts, fiscal stimulus, and deregulation. However, there is another reason for the bull market: Rising participation of retail investors, unleashed by the COVID pandemic, has made stock markets resemble online casinos. As investors question the sustainability of the Korean stock market's performance next year, it is helpful to understand the changing dynamics of stock markets around the world, led by Korean retail investors.
For decades, the U.S. has led the world in ownership of stocks as a part of household assets. The introduction of 401(k) plans in 1978 set off a decades-long bull market in U.S. equities. Since then, the U.S. has found inventive ways to get its population to buy more equities. A seismic shift from defined benefit pensions to 401(k)s fundamentally changed how Americans save for retirement. Instead of relying on employer-guaranteed pensions, workers became responsible for their own investment decisions, with stocks becoming the primary means of long-term wealth building.
Since the global financial crisis, ultra-low interest rates have sparked another push into mainstream equity ownership from bonds and savings accounts. Quantitative easing (QE) did exactly what the Fed wanted it to do and encouraged buying riskier assets. The average American household's ownership of stocks, already the highest in the world, increased thanks to the bull market. U.S. households now collectively own more than 35 percent of their assets in stocks and funds, far above South Korea's 7 percent. Wall Street's marketing machine made stock investing culturally ubiquitous for average Americans through financial literacy programs and media education. The rise of investment clubs, financial television programming and online resources reduced the intimidation factor around investing.
A different types of stock investing emerged from online brokerages like E*TRADE and Charles Schwab, followed by commission-free platforms like Robinhood. Trading became cheaper, faster and more convenient, while mobile apps made investing accessible to younger generations. The trading boom finally exploded with Covid lockdowns, unlocking a new culture I call 3G: the "Gambling and Gaming Generation." A combination of technology and savvy marketing has taken stock trading to another level, changing from the baby boomers, who benefited from buying and holding for the long term, to Gen Z who combine gaming (online video games) and gambling (online and sports betting) to buy and sell stocks on a daily or even hourly basis.
Demographic wealth concentration within the U.S. provides additional liquidity support. Baby boomers control 70 percent of U.S. wealth, totaling $84 trillion, of which 65 percent is in equities, the highest allocation in history. During the pandemic, the U.S. stock market transformed from a capital allocation mechanism to an entertainment platform. This transformation represents perhaps the most significant change in market structure since the introduction of 401K, fundamentally altering how capital flows into and within equity markets.
The key transformation is in scope and speed since the COVID-19 pandemic, where daily stock trading app usage in the U.S. increased from an average of 12 minutes in 2019 to 67 minutes in 2023. Retail participation has grown from 15 percent of total volume to 34 percent, while options trading volume has increased 157 percent since 2020, with retail investors now accounting for 39 percent of total options volume.
Perhaps most significantly, average holding periods have declined from 8.5 months to 4.2 months. In the U.S., 23 million new retail brokerage accounts were opened during 2020-2021, with 67 percent held by investors under the age of 35 who use smartphones as their primary trading interface. Exchange-traded fund assets under management ballooned from $4.6 trillion to $8.1 trillion between 2019 and 2023.
To maximize profits from this fast-shifting rotation into speculative trading from buying for the long term, zero brokerage commissions have become a global phenomenon, with 90 percent of retail brokers worldwide eliminating trading fees by 2023. This democratization has had global effects, with many countries now offering Robinhood-style trading features and retail-driven market rallies occurring globally post-COVID. Korea is at the forefront of this trend, with mobile trading now dominating all other channels within just a few years.
The key question is whether this is a trend that typifies the peak of a cyclical bull market or a permanent structural change. The answer lies in understanding how demographic and cultural shifts have created permanent changes in wealth accumulation patterns, making the gaming and gambling approach to investing not just a fad but an essential feature. The success of features like notional trading, where people bet as little as a dollar on a stock whose single share is priced at more than a hundred dollars, is an example. Most recently, Korea has introduced after-market trading, with the U.S. stock market likely to allow 24-hour trading in the near future.
South Korea is leading the trend in global demographics and the accompanying changing wealth management culture. The traditional wealth-building approach no longer applies to the MZ Generation, who embrace an entirely different set of values and mindset from previous generations. These are rational reasons rather than a simple generational gap. The MZ Generation prioritizes financial wealth and consumption over the traditional values of starting a family and owning a home.
Since the pandemic, Koreans have bought around $100 billion of U.S. stocks, far more than any other retail investors outside the U.S. Koreans rushing for U.S. stocks since the pandemic is an instructive case study, as South Korea is undergoing the most extreme and drastic demographic decline in the world. The current bull market in Korean stocks is even more impressive, considering the capital outflow shifting to the U.S. As the Korean government continues its capital market revitalization efforts, it highlights the possibility of attracting some of the outbound capital back home.
Peter S. Kim is a director at the KB Securities. The views expressed in this article is his own.