‘Ants’ hope this crisis will be different
In March alone, retail investors net purchased a record-high 11.2 trillion won ($9.1 billion) worth of shares on the main bourse while foreigners shed a net 12.5 trillion won, according to Korea Exchange data. Trading volume was 25.9 billion shares in March, a 169 percent year-on-year increase from last year’s 9.6 billion.
The rampage into stocks by individual investors - splurging their savings and some even putting their homes up for sale - has earned the rally a nickname: the “Donghak Ant Revolution.” Retail investors in Korea are often referred to as ants, for their lack of influence in the market, and the Donghak Peasant Revolution pitted peasants against the feudal establishment in the late 19th century.
That Joseon Dynasty (1392-1910) revolt ended in tragic failure. Analysts are hoping their retail investor successors might face a different fate this time.
“They are not the same ‘ants’ they used to be more than a decade ago,” said Kim Sang-bong, an economics professor at Hansung University. “They are now more resourceful, experienced and have more capital to spend. The ‘ants’ might actually make profit this time.”
The Korean bourses experienced some of their most extreme volatility in March as the novel coronavirus spread to the West and hammered prospects for the global economy.
The benchmark Kospi, which hovered above the 2,000 level at the beginning of March, nosedived to as low as 1,400, triggering 15 trading halts on the Kospi and the secondary Kosdaq markets.
Those furious drops, however, did not extinguish retail investors’ mad buying spree. Except for two days in March, which had 22 trading days, retail investors posted positive net purchases of shares on the Kospi. In contrast, foreign investors posted negative net purchases throughout the month except for on a single day.
Retail investors’ picks were mostly large cap stocks.
Samsung Electronics, the No. 1 company in Korea by market cap, was the unrivaled favorite of retailer investors in March. Retail investors net purchased 4.9 trillion won worth of Samsung shares. Foreign investors dumped about the same amount during the same period. There were ups and downs throughout the month, but thanks to the strong backing of retail investors, Samsung Electronics shares recovered to the 47,000 won level on Friday, a big rebound from 42,500 won in the middle of the month.
Hyundai Motor shares came in second with 781 billion won worth net purchased by retail investors in March.
SK hynix, the second-biggest firm in terms of market cap, and Samsung SDI were also among top picks by retail investors.
Aside from the such safe picks, retailers’ preference also leaned toward IT companies. Kakao, a start-up-turned-internet giant, was in the top 10, with individual investors scooping up 202.2 billion won worth of its shares in March.
The list for the Kosdaq was heavy with companies that had some connection to the outbreak. Three out of top six picks - Seegene, Gtree BNT and Sugentech - were biopharmaceutical companies that recently came in the limelight for either coming up with possible treatments for the Covid-19 virus or producing test kits.
A big surprise is that there are more individual investors waiting with cash on hand to invest this month.
According to the Korea Financial Investment Association, investors’ deposits in March exceeded 43 trillion won, nearly 14 trillion won more than the previous month. The deposits peaked at 45 trillion won on March 26, an all-time high record.
More than 800,000 new accounts for stock trading were activated last month, the highest increase in 11 years, since April 2009. The number of stock trading accounts now stands at 30.7 million in total.
“The 45 trillion won in investors’ deposit indicate that there is this amount of asset capacity ready to be injected into the market sooner or later,” said Kim Yong-koo, a senior researcher at Hana Investment & Securities.
“It will act as a cushion for foreigners’ exodus from Korea’s market. … It also indicates that retail investors’ role in Korea’s stock market should not be overlooked anymore.”
The “ants,” as the nickname suggests, have usually ended up victims of market routs, especially considering that Korea is heavily reliant on foreign capital.
Individual investors almost always ended up holding the bag after foreign investors made hasty retreats from the Kospi and Kosdaq.
That was how things ended up in Korea’s two deepest financial crises: in 1997 and 2008. Retail investors who jumped in the market when the index was on a downward trend panicked as foreign investors dragged price down further. The “ants” ended up selling stocks at lower prices, and foreigners snapped them up.
“Back in 1997 and 2008, sentiment and regulation on investment for retailers were not so favorable,” said Professor Kim from Hansung University. “They lacked information and experience. Timid retail investors only went for short term-profit only to end in tears after making losses.”
The latest volatility is somewhat different from the past. Despite share prices continuing to spiral down, retail investors are not only holding onto their shares but are willing to buy even more.
“They now know that in the long term, large cap shares will return to their normal level,” Kim said.
A lack of options in alternative investments have also contributed to the retail investors’ persistence in stock trading.
“Bank deposits have long been a traditional option in personal asset management,” said Chang Hyo-seon, analyst at Samsung Securities.
“But there has been withdrawal from both regular and fixed deposits recently. As of February, 5 trillion won and 28 trillion won have been withdrawn from regular and fixed deposits respectively compared to November.”
A downward trend for interest rates discourages putting money in banks, Chang points out.
Korea’s key interest rate was lowered by 50 basis points in March to 0.75 percent with estimates there could be an additional cut in the second quarter.
“If retail investors avoid making investments on credit and pouring all of their money into a single stock, they are bound to make profits,” said Professor Kim.
“Even after the coronavirus fades, the trade volume by retail investors will be maintained.”
Meanwhile, the Financial Services Commission on Thursday warned Korean investors to avoid making rash investment decisions in light of the market volatility.
“We appreciate individual investors showing love toward Korean companies and having faith in our stock market, but excessive investment on leverage should be avoided,” Sohn Byung-doo, vice chairman of the commission, said.
BY JIN EUN-SOO [email@example.com]