Are retail investors deserting KOSPI?

Employees work at the dealing room of Hana Bank's headquarters in central Seoul, Tuesday. Korea's main benchmark KOSPI ended at 2,439.62 points at Tuesday's closing, a 0.52 percent fall from the previous session. Daily trading started at 2,451.00 points at the beginning of the session. Yonhap

Retail investors' fatigue over bear market causes their exodus

By Anna J. Park

While the main benchmark KOSPI showed signs of a slight recovery in late July after months of severe plunges, retail investors have resorted to net-selling local stocks.

According to the Korea Exchange (KRX), retail investors net-sold 976.4 billion won worth of KOSPI-listed stocks during the six trading sessions from July 25 to Aug. 1, when the main benchmark index logged a consecutive winning streak of six sessions.

It was the first time since last December for the KOSPI to record a winning streak of more than five consecutive trading sessions. Despite the temporary rally mood of the market, more retail investors chose to either take short-term trading profits or sell their long-held stocks to retrieve their investment principal. Additionally, they may also be selling local stocks as a stop-loss strategy. In either case, they decided to remove their positions on local securities, rather than staying in the market with increased exposure to stock market risks.

While retail investors were net-selling local stocks for whatever reasons, overseas and institutional investors net-purchased stocks worth 920.9 billion won and 1.08 trillion won, respectively, during the same period.

Overseas investors, in particular, changed their position from months-long net-selling of local stocks to net-buying in July. Their return to the Korean stock markets has to do with market experts' forecasts concerning a bear-market rally.

“August is expected to show a technical rebound phase, stoking stock prices and corporate valuations to a normal level,” said Lee Kyoung-min, an analyst at Daishin Securities.

Retail investors lose interest in local stock investments

Unlike reinvigorated overseas investors, retail investors' fatigue over the months-long bear market is pushing them to exit the local stock markets.

In July, retail investors net-sold 1.19 trillion won worth of KOSPI-listed stocks, while the main benchmark market index recorded an impressive monthly increase. The KOSPI ended at 2,452.25 points on Monday, an 8 percent increase from 2,276 points logged in early July. Nonchalant to the rally, retail investors continued to net-sell local stocks during the month.

The move is a drastic contrast compared to the same month last year, when retail investors net-purchased 7.8 trillion won worth of local stocks, buttressing the KOSPI index. With retail investors leaving the domestic stock market, its liquidity has shrunk by more than 4 trillion won, according to the Korea Financial Investment Association.

Retail investors' selling spree was prevalent among stocks showing a soaring price pattern lately. LG Energy Solution, was the most net-sold stock by individual investors in July, as they net-sold over 335.5 billion won worth of stocks. Samsung Electronics, Hyundai Motor, Celltrion, Naver and Kakao are other stocks that were dumped by retail investors in the same month.

Instead, their most net-purchased stock was KODEX Futures Inverse 2X ETF, net-buying 205.5 billion won worth, reflecting retail investors' grim sentiment for the stock market.