Small investors deserting local stock market

Retail investors stage a protest in front of the building of the Korea Exchange in Seoul, Jan. 18, calling for the resumption of drugmaker SillaJen stock trading. Yonhap

By Lee Min-hyung

The Korean stock market is losing trust from local retail investors, as they feel increasingly burdened by the unexpected ups and downs of even some promising large-cap stocks, they said Wednesday.

The benchmark KOSPI gained rare momentum for a rally in 2020 on the pandemic-sparked liquidity expansion, but is showing signs of losing steam in recent weeks. This has sparked fears among individual investors, rekindling the long-held distrust of the local stock market. The main bourse reached a record high of 3,300 points back in June 2021, but fell to below the 2,800-mark as of Wednesday.

The rise of mobile platforms also made it easier for them to transfer their capital into U.S. stocks, which they picked as another key reason behind the money transfer.

“Retail investors did not have enough knowledge on how to invest in U.S. stocks, but this is not the case anymore particularly among tech-savvy young people,” a retail investor surnamed Lee who is in his 30s said.

“They can easily buy and sell U.S. stocks with their smartphones, and on top of that, there is a widespread perception that major U.S. large-cap stocks are less volatile and guarantee better returns. It is natural for them to be more interested in U.S. stocks at a time when major Korean stocks extend losses due to unpredictable issues ― such as the spinoff of cash-cow businesses or leadership risks.”

Up until recently, Kakao shares have been on a steep decline, after the nation's dominant mobile platform operator was mired in a leadership controversy, with some top management of the firm's key affiliates selling off their shares worth tens of billions of won soon after their market value reached its peak after going public.

LG Chem, one of Korea's representative large-cap tech stocks, was also hit by its decision to spin off its battery business. The physical division raised woes among investors that the company may end up losing growth momentum. LG Chem shares were traded at over 1 million won in early 2021, but fell below 700,000 won ahead of the market debut of its battery subsidiary, LG Energy Solution.

Another retail investor surnamed Kim also expressed distrust in the Korean stock market for such unpredictable risk factors.

“A general view among retail investors is that almost all Korean shares are exposed to more risks than major U.S. stocks,” Kim said. “With the Fed and the Bank of Korea on track to increase key rates, few investors would be willing to take risks, and my view is that preference for safer assets will remain in place among retail investors for the next few months.”

According to data from the Korea Exchange, the daily average short-selling of local shares between Jan. 3 to 21 reached 569 billion won, up by 58 percent a month earlier. The figure is also the highest since May 2021 when the exchange partially resumed the practice after banning it in March 2020 due to the then pandemic-induced stock fall.