Korean Investor Deposits Hit Nine-Month Low, Signaling Waning Stock Market Confidence

A board at Hana Bank’s dealing room in central Seoul displays the won-dollar exchange rate, the KOSPI and the KOSDAQ on Oct. 23. (Yonhap) Samsung Electronics has reported quarterly operating profit exceeding 100 trillion won for the first time, setting a new earnings record. Yet South Korean retail investors are showing signs of retreating from the domestic stock market. Investor deposits, a key indicator of funds available for stock purchases, have fallen to a nine-month low, raising concerns about the market’s ability to sustain a recovery. According to the Korea Financial Investment Association on Oct. 23, investor deposits stood at 89.63 trillion won, or approximately $67.75 billion, as of Oct. 21, falling below the 90 trillion won mark for the first time since Jan. 14. The figure represents a decline of nearly 50 trillion won from the record high of 139 trillion won reached on June 4, just over four months earlier. Corporate earnings and share prices have moved in sharply different directions. Samsung Electronics reported preliminary third-quarter operating profit of 107.4 trillion won, yet the KOSPI has fallen from the 7,000-point range to the 5,500-point range this month. Shares of Samsung Electronics and SK hynix have dropped between 20% and 30% during the period, illustrating how even record earnings have failed to restore investor confidence. Trading activity has also slowed considerably. Daily trading value on the KOSPI market, which approached 80 trillion won in May, has recently fallen to around 17 trillion won. Analysts attribute the decline in part to investors reducing their market exposure amid heightened volatility. Investors using borrowed funds have also been scaling back their positions. Outstanding margin loans declined from 33.39 trillion won at the beginning of October to 30.27 trillion won as of Oct. 21, a decrease of more than 3 trillion won. Margin loan balances associated with SK hynix and Samsung Electronics fell by approximately 650 billion won and 500 billion won, respectively. The risk of forced selling remains another source of concern. Unsettled margin trading balances exceeded 1 trillion won for eight consecutive trading sessions beginning Oct. 12, while forced share sales approached 400 billion won. Market observers warn that further declines in stock prices could trigger additional selling if unsettled balances remain elevated. Meanwhile, Korean retail investors have increased their purchases of overseas equities, particularly U.S. stocks. Net purchases of U.S. shares reached approximately $4.8 billion through Oct. 21, a sharp reversal from the net selling recorded in April and May. The stronger won and weakening appeal of domestic equities have been cited as factors contributing to the shift in investment preferences. Analysts expect the recovery in domestic investor sentiment to take time. Heo Jae-hwan, an analyst at Eugene Investment & Securities, noted that the pace of growth in investor deposits has lagged significantly behind movements in the KOSPI, suggesting that enthusiasm for domestic equities has cooled. Market observers say a sustained return of retail investors will require greater confidence in corporate earnings growth next year and beyond, rather than reliance on currently strong results alone.