Kospi Becomes ‘Foreigners’ Playground’ as Retail Investors Exit, Wiping Out 50 Trillion Won

Investor deposits shrink by 51 trillion won in four months

After hitting a record in June, they fall to this year’s low in October

Investor deposits, which surged alongside the Kospi in the first half of this year, have fallen by more than 50 trillion won in just over four months. The decline suggests retail investors are leaving the Kospi rather than stepping in to buy on weakness as the selloff deepens.

As of Oct. 22, investor deposits stood at 88.6841 trillion won, the lowest level this year since Jan. 13, when they were 88.0489 trillion won, according to the Korea Financial Investment Association. After falling below 90 trillion won on Oct. 21 for the first time in more than nine months, the balance declined again to the lowest level of the year.

Investor deposits had earlier climbed to a record 139.6948 trillion won on June 4. But as the market correction continued, the balance turned lower. It fell below 100 trillion won on Oct. 14 and then slipped under 90 trillion won just six trading days later.

Investor deposits refer to cash that individual investors have placed in brokerage accounts to buy stocks but have not yet used. Because the money serves as standby funds for equity purchases, it is viewed as a gauge of stock-market activity. If an investor puts 10 million won into a brokerage account, buys 7 million won worth of Samsung Electronics shares and leaves 3 million won unspent, that remaining 3 million won is counted as an investor deposit.

Investor sentiment has weakened rapidly this month as the Kospi underwent a sharp correction, sliding from the 7,000 level to the 5,500 level. Investor deposits have fallen by about 15 trillion won this month alone. As funds that could support a market rebound shrink, retail investors’ capacity to buy stocks at lower prices is also weakening.

Investors who bought stocks on margin are also cutting back on borrowing. Outstanding margin loans fell by more than 3 trillion won, from 33.3901 trillion won at the start of this month to 30.2710 trillion won on Oct. 21. Forced liquidations triggered by falling share prices and loan repayments by investors appear to have combined to drive the drop.

Margin balances tied to large-cap semiconductor stocks have been falling particularly fast. SK Hynix’s margin-loan balance has declined for seven straight trading days since Oct. 13, dropping by about 650 billion won. Samsung Electronics’ margin-loan balance fell by nearly 500 billion won over the same period.

Retail interest in South Korea’s stock market is also showing signs of fading. Some analysts say money leaving the domestic market is moving overseas. Huh Jae-hwan, an analyst at Eugene Investment & Securities, said customer deposits, which serve as waiting funds for stock purchases, are flowing in at a markedly slower pace than the Kospi’s moves would suggest. He added that enthusiasm for the domestic stock market had cooled.

Kang Hye-seong, an analyst at SangSangin Securities, said retail money has been moving from South Korea to the US since July. Since August, a stronger won has spurred demand for dollar conversion and reduced the appeal of domestic investments, she said.

"People used to think that if stocks fell, you could hold on or average down by picking companies with solid earnings, but that logic no longer works at all," one investor said. "When foreigners are dumping tens of trillions of won in shares, how can retail investors possibly absorb that selling?"

Another retail investor said daily swings of several percentage points, along with repeated sidecar curbs, have made it impossible to tell where the bottom is. "Now the stock market no longer feels like a place for individual investors," the investor said. "It feels like a playground only for foreigners and institutions, and for now the most efficient investment may be to stay away from the Kospi."

Kang Kyung-ju, Hankyung.com reporter memory@hankyung.com