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Korea Retail Trading Boom Scales New Peak With Record Buying

·2 min read

(Bloomberg) --

Less than six months into the year, South Korean retail traders have already bought more local stocks than they did in all of 2020, as a pandemic boom in individual investing shows no signs of abating.

Retail investors’ accumulated net purchases of shares in the benchmark Kospi for 2021 reached 51.7 trillion won ($45.6 billion) as of Monday, according to Korea Exchange data. That’s more than last year’s annual record total of 47.5 trillion won.

The strong support from the nation’s mom-and-pop traders has helped push the Kospi up more than 9% for the year, making it one of the best performers in the Asia Pacific.

The retail traders, referred to locally as “ants,” have helped offset an exodus of domestic institutional investors and the region’s worst foreigner selloff -- overseas investors have dumped nearly $16 billion of Korean stocks this year. They’ve also minimized the negative impact from the return of short-selling, with the Kospi having only slipped 0.4% since a 13-month ban was partially lifted at the start of this month.

“They are taking the shares that foreigners dump in stride,” said Kiwoom Securities Co. analyst Han Jiyoung, who expects retail investors to remain net buyers. “Two or three years ago, this amount of foreign selling would have caused the markets to drop more.”

Fueled by easy money and pandemic free time, mom-and-pop traders drove the Kospi up more that 30% last year, making it the world’s second-best performer behind Nigeria’s benchmark. Amid their continued hunt for higher returns at a time of low interest rates, individuals now account for about three-quarters of daily stock trading in South Korea.

The surge in individual stock investment has also pushed their margin debt levels to an all-time high. Margin financing by retail investors set a record of 23.5 trillion won on April 29 and remains near that level, according to Korea Financial Investment Association data.

“Margin trading makes investors vulnerable to short-term market corrections,” said Seo Sang-Young, a market strategist at Mirae Asset Securities Co. “When markets crash, those who bought stocks on debt will be hit harder.”

While their penchant for risky trades including volatile microcaps and preferred stock drew regulator warnings last year, the most popular shares among retail traders so far this year have been blue chips including Samsung Electronics Co., SK Hynix Inc. and Hyundai Mobis Co., according to exchange data.

“With few other options for investment because of low interest rates, Koreans see stock investment as a way to build wealth,” said Kiwoom’s Han. “They learned last year that stock investment will eventually pay off.”

(Updates with margin debt levels in paragraphs 7-8, adds chart)

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