Treading on the ants
The author is senior editorial writer of the JoongAng Ilbo.
Individual investors used to raid the stock exchange during the stock market crashes in the 1980s and ‘90s. They would shout at the staff and throw chairs at the screens in anger. If they acted this way today, they would have been pulled out by security guards and sent behind bars for destruction of property. But in those days, this was regarded as a customary ritual during a bear market. After the main stock index crashed several times, the authorities stepped in and announced a stimuli or stabilization measure.
Korean retail investors were first referred to as “ants” in the late 1980s. Some protested being likened to insects. But the sobriquet soon sank in, given that ants are wise and diligent. It also proved to be convenient as it stigmatized them as the weak party that needs protection and support.
After the market crash since the outbreak of the coronavirus in spring, individual investors gained the prefix “Donghak” to their ant moniker. Donghak refers to the 1894 Donghak Peasant Movement, when peasants fought on behalf of soldiers to protect their families and regions from foreign aggressions. The “Donghak ants” fearlessly flocked into the stock market after foreigners dumped their shares and exited as the country emerged as a virus epicenter. The name has both patriotic and vulnerable connotations. They have evolved quietly — nicely — compared to the retail investors who broke into the stock exchange and made scenes.
Mom-and-pop investors jump into the stock market with some good memories. A stock that was dirt cheap, 500 won ($0.45), in the wake of the 1997 foreign exchange crisis rose to 10,000 won. Retail investors bought a net 60 trillion won worth of shares since the Covid-19 outbreak this year. The young who have given up finding a job or buying a house joined the stock frenzy. Many invested with borrowed money. The Moon Jae-in administration must feel the liability. Fortunately, major retail burns have not taken place so far thanks to the bull run. The Donghak ants are credited for sustaining the stock market despite foreign desertion.
The Donghak stock movement panned out as a win-win. It could be compared to the heated gold donation campaign which helped Korea pull out of the international bailout crisis in the late 1990s. But the fad is yet to die down, and mom-and-pop investors began to leverage on their power. They have turned into an Achilles’ heel for the populist Moon Jae-in administration, as the potential six million votes in their hands cannot be neglected. Most of all, they are his core support group in their 30s and 40s.
A revision to the capital gains tax system to raise taxes for big stock investors was included in the tax code amendment outline the Ministry of Finance unveiled in July. The move immediately angered mom-and-pop investors. President Moon ordered a re-examination of the amendment because “the investment sentiment of individual stock traders must not be hurt.” The Finance Ministry then proposed to lower the threshold for the capital gains tax from the current 1 billion won worth stock holdings to 300 million won. The plan also displeased individual investors. An online petition to the Blue House demanding the dismissal of Finance Minister Hong Nam-ki was signed by more than 240,000 million. Some even rallied in front of the presidential office with pickets demanding action from the president to defend the “ants.” Individual stock investors somehow built up political power. Lee Nak-yon, head of the ruling Democratic Party (DP) and a presidential hopeful, promised to do what he can.
The opposition to the capital gains tax changes is based on two arguments. The first is that it is unfair to levy such heavy taxes on individuals. However, a person owning more than 300 million worth in a certain stock can hardly be expected to be a man in the street. Such wealthy people make up only 1.5 percent, or 90,000, of all individual investors, according to the Korea Securities Depositary. He or she cannot fall under the “ant” category. The second is the concern about the potential damages to other investors if those 90,000 rich people subject to the capital gains tax increasingly dump their shareholdings in droves. But under such reasoning, the government cannot draw up any stock policy.
At the end of the day, brokers got what they wanted as the government withdrew the plan. Deputy Prime Minister Hong Nam-ki only feigned to resign. All the focus had been on the impact on retail investors. Why the change in tax code was needed — whether to ensure more fairness in taxation or to increase tax income amid a shortfall in revenue — was never discussed. We are back to the 1990s when angry stock investors rushed to the exchange and damaged the market screens.
Stock investors are not patriots. People who stock money in banks cannot have less devotion to the country. Does that make investing in overseas stocks “unpatriotic?” Stock investors merely bet on stocks in hopes for better returns. The liabilities should fall on investors like any investment rule. Their action cannot be compared to gold donations because at the time the young and old “donated” any gold in their house to help the country in crisis without any expectations for returns. There cannot be patriotism behind stock investment.