Pension funds on buying spree amid stock market plunge

By Lee Kyung-min

Institutional investors including pension funds are scooping up shares of plunging stocks, a strategic move to buy them at a low price as the market tumbles due to external shocks, industry officials said Friday.

Low-profile individual investors are also rushing to buy shares in the hope that investment in the local bourse as it hits a 4-year low could yield a handsome profit when the market recovers.

According to the Korea Exchange (KRX), institutional investors including pension funds bought a net 1.61 trillion won ($1.31 billion) in shares between Jan. 20 and March 12. Jan. 20 was the date Korea reported its first case of the new coronavirus.

On the trading days between March 2 and March 12, they purchased 1.07 trillion won, a pronounced buying spree given they bought a total of 347.6 billion won for the entire month of February.

Market analysts say the pension fund-driven buying spree indicates that institutional investors believe the shares are hitting a low point, but expressed caution against buying them based solely on gut feelings.

“The KOSPI taking a dive and falling below the 2,000-mark was mostly followed by institutional investors buying big chunks of shares,” Industrial Bank of Korea (IBK) Securities researcher Chung Yong-taek said.

“This is nothing new because it has happened over the past decade.”

Foreign investors net sold 897.1 won, adding to the 5.5 trillion sell-off this month.

This is a global trend given many investors are seeking to curtail risky assets ― mostly stocks ― amid low interest rates that are likely to be cut further due to an impending economic crisis brought on by the rapid, global spread of the new coronavirus.

“The corporate initial public offering (IPO) market is not as vibrant as it used to be due to the overall economic slowdown and the same goes for all other market sectors,” Meritz Securities chief economist Stephen Lee said.

“The mass stock purchase led by pension funds is helping to place a floor on the crashing stock market for the moment, but it will have only so much buying power given the fast-deteriorating global economic situation.”

Individual investors seeking to net a short-term gain are mostly taking a hit from the steeper-than-expected fall.

The KRX said they net bought over 12.5 trillion won between Jan. 20 and March 11, scooping up 1.28 trillion won March 9 alone, the largest purchase in eight years and seven months.

They bought 537.5 billion won, March 12, extending the buying spree for the sixth consecutive month.

Yet what they thought was a boon is increasingly turning into a bane as they saw a combined net loss of 21.8 percent after 19 out of 20 large-cap shares they bought took a major dive that has been continuing since late January.

This is worse than the KOSPI performance which saw a 15.21 percent drop in the same period.

Foreigners on the other hand saw only a 5.34 percent in net loss in the same period.

Analysts say individual investors should brace for the worst given the global stock market is likely heading toward a bear market.

“Even if the stock market sees a momentary rebound ― which is not likely any time soon ― the impact will be short-lived given the large amount of shares held by individual investors released at the same time could push down the market,” Lee said.

The heavily leveraged market is another problem.

According to the Korea Financial Investment Association, over 10.1 trillion won was used for leveraged purchases of primary KOSPI and secondary KOSDAQ shares.

“Entering the market on the blind, groundless expectation that the market will rebound because it has fallen is highly dangerous, and the risk is much greater if you seek a leveraged purchase,” Lee added.

The KOSPI closed at 1,771.44, Friday, down 62.89 points or 3.43 percent from a day earlier.

Foreigners net sold over 1.2 trillion won in stocks, while institutional investors and individual investors bought 664.9 billion won and 442.9 billion won, respectively.