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Flush with cash, retail investors’ stock market influence grows

Foreign investors gobble up Korean bonds amid turmoil in global markets

(Yonhap)
(Yonhap)

South Korean retail investors are exerting greater influence on the nation’s stock market with 47.8 trillion won ($39.35 billion) amassed in cash, seeking short-term profit, data showed Monday.

According to the Korea Exchange, individual investors purchased a net 30.76 trillion won in shares -- 26.09 trillion won on the benchmark Kospi and 4.67 trillion won in the tech-heavy Kosdaq market -- from Jan. 2 to Friday.

The figure is in sharp contrast from the same period last year when individuals’ net selling on the main bourse added up to 4.7 trillion won and 798 billion won in shares in the Kosdaq.

Retail investors’ deposits for stock investment also surged to 44.47 trillion won as of Thursday -- up 62.66 percent, or 17.13 trillion won, from a year earlier, according to data from the Korea Financial Investment Association.

Investor deposits refer to funds that are parked with brokerage accounts -- either before making stock purchases or profits earned after transactions -- but mostly for future investments. With 17 trillion won of fresh fund inflows, individual investors, dubbed “ant warriors” here, are estimated to be holding nearly 48 trillion won in total when their net stock purchases this year are included.

Market watchers attributed the increases to growing demand as investors increasingly turn to direct investments, such as stocks, and away from indirect investments, like public offering funds and equity-linked securities.

“Retail investors accumulated nearly 50 trillion won in stocks and stock investment deposits this year. The figure is quite remarkable, considering that the National Pension Service’s net purchase stands between 10 trillion won and 20 trillion won,” said Choi Seok-won, head researcher at SK Securities.

While retail investors have grown as major players on the local stock market, offshore investors continuously purchased Korean bond exposure instead, amid the country’s favorable economic conditions, according to the data from the Financial Supervisory Service.

Foreigners held 140.9 trillion won of listed government and corporate bonds as of end-April, up 17 trillion won from the end of last year, as their holdings of the country’s bonds surpassed 140 trillion won for the first time.

Foreign investors’ increased exposure to the country’s bonds contrasted with their selling spree in the local stock market over the cited period.

They snapped up 7.4 trillion won and 9.3 trillion won of the local bonds in March and April, respectively. But their sell-offs in the equity market marked 12.5 trillion won and 4.1 trillion won in the last two month-period.

It also compared with the international investors’ massive exit from other emerging markets this year. Foreigners withdrew $41 billion from emerging market bond funds, according to the Korea Center for International Finance.

Market experts said that the country’s financial stability, solid economic fundamentals and relatively high interest rates attracted foreigners to the local bond market.

“Considering the size, speed of increase, cash inflows and repayment ability, Korea’s liabilities are quite stable,” said Yoon Yeo-sam, an analyst at Meritz Securities. “Despite the increase in per capita national debt, the possibility of their exit from the country’s bond market is low.”

By Jie Ye-eun (yeeun@heraldcorp.com)
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