Faster news spurs trades on Korean markets

At 1 p.m. on Dec. 19, merely an hour after the announcement of North Korean leader Kim Jong-il’s death, a Kookmin Bank branch on the side of a large thoroughfare in Jung District, central Seoul, was busy with an unusual number of office workers.

“There was a steep rise in the number of customers wanting to open stock transaction accounts handled by our tellers since noon,” said a bank official on site. “Many customers also asked whether their dormant stock accounts could still be used for trading.”

As the speed of news accelerates in today’s digitally convergent world, evidence suggests that Korea’s retail investors used their increasing connectivity to react faster to developments on the stock market this year.

Retail investors’ basic position to “buy low and sell high” was clear in trading sessions following large news events such as the U.S. credit rating downgrade or the recent increase in North Korean risk, with stock trading accounts reaching record levels of activity following Kim’s death.

Analysts said that the rapid dissemination of news through social media and other outlets, plus the widespread use of trading by smartphone, were some of the reasons for retail investors’ hyperactive participation in the stock market.

Last Monday, the news of Kim’s death and the subsequent rise in geopolitical risk did not strike fear into the hearts of the South Korean public, but rather sparked a heightened desire to win big on the stock market.

As the benchmark Kospi dropped 90 points during trading, retail investors bought some 165.1 billion won ($143.6 million) in stocks, while foreign investors sold 206.5 billion won. And evidence suggests that even people who had not traded for a while came out of the woodwork to invest.

According to the Korea Financial Investment Association (Kofia), the amount of active stock transaction accounts increased by a whopping 111,155 accounts last Monday to reach 19.04 million, exceeding the 19 million mark for the first time

“That was the biggest single-day increase [in active stock transaction accounts] ever,” a Kofia official said. “The rate of increase is exponential compared to the rest of the year, when [they] increased daily by the hundreds or thousands.”

Such a reaction was a far cry from 1994, when North Korea’s founder Kim Il Sung died and sparked off a stampede of hoarding food and other necessities in the South.

The trend of buying low to sell high has been a burgeoning characteristic of Korean retail investors this year.

For example, on Dec. 1 when the Kospi rebounded more than 68 points in a single day to exceed 1,900 for the first time since Nov. 14, retail investors sold off a record 1.68 trillion won in stocks as they liquidated holdings amassed when stock prices were lower.

“Retail investors learn about news faster through smartphones and social media, and such an environmental shift seems to have affected investment patterns,” said Kim Joon-seok, research fellow at the Korea Capital Market Institute. The monthly amount of smartphone stock transactions hit 29.85 trillion won as of October, up from 10.96 trillion won in December 2010, marking a rise of 172 percent in 10 months.

However, some cautioned that faster response times to breaking news do not necessarily amount to sounder investments. “The quality of the information can be more important than quantity,” said Kim Hak-kyun of KDB Daewoo Securities.

By Lee Jung-yoon [joyce@joongang.co.kr]