Retail investors lose power in local stock market

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By Anna J. Park

Retail investors have begun exiting the lukewarm stock market after watching the KOSPI remain stuck hovering at around 3,000 points for some time.

According to the Korea Exchange (KRX), the proportion of retail investors trading on the benchmark index has decreased to 48.4 percent this month, lower than the 10-year-average of 49.8 percent.

This is the lowest proportion of retail investors in the KOSPI since spring 2020, when the market crashed from the COVID-19 pandemic shock.

From April of last year to September of this year, retail investors accounted for more than 60 percent of KOSPI trades for 18 straight months. The proportion decreased to 58.1 percent in October, and 57.4 percent in November.

Retail investors' average daily trading amount also declined to 11 trillion won ($9.28 billion) in November and to 10.6 trillion won so far in December. This figure is about 0.48 percent of the entire market cap of the stock market.

This weak performance is in contrast to retail investors strong buying after the pandemic induced market crash in March last year. They were the strongest buyers in local stock markets, stoking share prices.

Retail investors had been net-buying stocks worth 121 trillion won on the KOSPI from January last year to October 2021. The period was characterized by consecutive monthly net-buying, except for November 2020. On the tech-heavy Kosdaq market, they net-bought 29 trillion won for the period, without any monthly net-selling.

However, they turned to net-selling of local stocks last month ― they net-sold 1.8 trillion won on the KOSPI and 600 billion won on the Kosdaq last month. This month, retail investors have so far net-sold 4 trillion won.

Market watchers say one of the reasons for this is that retail investors are leaving local markets to invest more in the U.S. or other overseas markets for better returns.

In November, local retail investors' trading volume in overseas stocks stood at $40.7 billion, the second-highest amount since last February's $49.7 billion. While they net-sold local stocks, they decided to invest more overseas, including in the U.S., Europe and Asian countries.

According to the Korea Securities Depository, the trading volume in overseas stocks among retail investors logged the highest level during the first half of the year, a 44.3-percent jump from the second half of last year.

Meanwhile, overseas investors' proportion in KOSPI trading has been increasing, logging 24 percent in November and 26.5 percent this month.

“When foreign investors were net-selling 20.6 trillion won from May to August, the KOSPI stood at around 3,200. As they have turned to net-buying since November, the benchmark index has been hovering at below 3,000,” Kim Kwang-hyun, an analyst at Yuanta Securities, said, explaining that lately foreign investors are tending to sell stocks at higher prices and buy during dips.

“However, it's still too early to say that foreign investors are back, as the current exchange rate is not favorable for them, and the volume of their net-buying is not that significant, compared to their net-selling spree earlier this year,” the analyst added.