Investor deposits held at South Korean brokerages — cash parked for stock purchases — have fallen by about 51 trillion won ($35.5 billion) in roughly four months, returning to levels seen at the start of the year. Retail investors kept buying stocks on a net basis, but new money flowing in slowed, pulling the reserves down. Analysts worry that market liquidity could deteriorate as a prolonged decline leaves retail funds tied up in a wide range of stocks.
Investor deposits stood at 88.68 trillion won on the 22nd, down about 51 trillion won, or 36.5%, from the record high of 139.69 trillion won on June 4, according to the Korea Financial Investment Association on the 24th. The figure fell below 90 trillion won on the 21st for the first time in about nine months and has declined further since. It is the lowest level since Jan. 13, when deposits hit this year's low of 88.05 trillion won.
Investor deposits are funds that investors have placed in brokerage accounts but have not yet used to buy stocks or other assets. Because the balance falls both when investors buy shares and when they move money out of their accounts, the entire decline cannot be read as money leaving the market. Still, given that deposits rose steadily during the market's advance, it is likely that new retail money coming into domestic stocks has dropped off.
Individuals remained net buyers of Korean stocks. From June 4 to Oct. 23, they bought a net 44.17 trillion won worth of shares on the KOSPI and 3.15 trillion won on the KOSDAQ. Net purchases of exchange-traded funds over the same period reached 28.25 trillion won. Despite the continued buying, deposits fell because fresh inflows failed to keep pace with the scale of purchases. In the first half of the year, new money exceeded what investors spent on shares, producing a clear buildup in reserves.
The pace of the decline has quickened this month. Deposits of 100.44 trillion won on the 12th shrank to 96.91 trillion won on the 15th and dropped into the 88 trillion won range by the 22nd. Margin loan balances, a gauge of leveraged investing, also fell to around 32 trillion won in the middle of the month. Both cash reserves and borrowed money have shrunk as the market swings sharply.
The KOSPI fell for seven straight sessions from the 6th to the 15th of this month and plunged 7.57% in a single day on the 15th. The index closed at 5,550.30 on the 23rd. With foreign investors continuing to sell, the drop in cash reserves could worsen supply and demand conditions. In the first half, individuals absorbed foreign selling by pouring in huge sums, but with deposits now shrinking, the market could face downward pressure from a shortage of buying power.
Views on where the market goes next are split. Some in the industry argue that stocks are undervalued relative to fundamentals, given that chipmakers' earnings power remains intact. Others say it is too early to count on a sustained rally, as credit risks surrounding the artificial intelligence industry — the driver of the market's earlier gains — come into focus.
"It is true that the KOSPI's recent decline has been excessive compared with earnings fundamentals," an official at a securities firm said. "But there is considerable wariness about the AI industry, which had been the catalyst for gains, so it is too early to expect a sustained upturn."