Retail investors flee and foreign investors take over, when will the decline in Korean stocks end?
Author: Wenser
Original title: Soaring 20% and falling 5%. When will the decline in Korean stocks bottom out?
After experiencing a violent rebound of about 20% last Friday, the KOSPI index of Korean stocks closed down 5% today to an interim report of 6257 points.
At the same time, various changes facing the Korean stock market have gradually surfaced: on the one hand, the liquidated account set a record of 500,000; on the other hand, it is a safe-haven operation where more than 24 trillion won was returned from the stock market to banks. President in KoreaLee Jae-myung's approval rating hits a new lowAgainst the backdrop of frequent actions by South Korea's financial supervisory authorities, the next direction of Korean stocks has become the focus of attention of Korean shareholders and the global capital market. After all, South Korea has 2 giants in the semiconductor industry under the AI boom.
Is the stock market losing blood and continuing to decline, or is it regulatory action that favors the stimulus? At least for now, the downturn in Korean stocks is far from over.
The current state of the miserable world of Korean stocks: Over 500,000 leveraged retail investors have burnt out their positions, and the size of investment deposits has shrunk by more than 35 trillion won
Prior to this“Korean Stocks Melted 7 Times During the Year: Midsummer When Young People Were Ruined by Leverage”In this article, we used the true stories of several Korean shareholders as an opening to unravel the truth about the bloody wave of market crashes in the Korean stock market this summer.
However, after nearly half a month of continuous decline and occasional rebound, various data shows that the Korean stock market is currently losing blood: on the one hand, retail investors who don't have enough “chives” are bursting out; on the other hand, it is a reduction in the size of investment deposit funds and an expansion of bank savings funds.
Goldman Sachs data: Over 500,000 leveraged retail accounts in Korea may have completely closed their positions
July 30, The Kobeissi Letter, a well-known financial account on the X platformThe post statedAccording to Goldman Sachs data, as of July 13, more than 1.2 million leveraged retail trading accounts in South Korea have triggered additional margin notices, and it is estimated that 320,000 to 360,000 accounts have been completely liquidated, accounting for about 3.4% of the Korean adult population (Daily Planet Daily note: This is equivalent to 1 out of every 30 Korean adults having the possibility of bursting out). With the cumulative decline of the Korea Composite Stock Price Index (KOSPI) of about 18% since July 13, it is estimated that the number of accounts that have been completely liquidated at that time has exceeded 500,000.
Despite the violent rebound in the KOSPI Index of Korean stocks and individual stock prices such as Samsung and Hynix on July 31, countless accounts that have gone out of business have forever become dust in the history of Korean stocks.
Korean stock “capital flow back to banks”: Over 24 trillion won flowed into term deposits at the top five banks
Due to adjustments in the semiconductor sector and stricter regulations on leveraged investment, capital to be invested in the Korean stock market was rapidly withdrawn, and the market experienced a “reverse capital migration” phenomenon.
data displayAs of the end of July, the time deposit balance of the five largest banks in Korea (KB Kookmin, Korea Asia, Woori, and NH Nonghyup) reached 973.49 trillion won, an increase of 24.09 trillion won over the end of the previous month, the biggest increase in a single month since the end of last month.
Capital around the stock market also showed a marked contraction. According to data from the Korea Financial Investment Association, investors' securities account deposits (funds to be invested in stock transactions) reached a record high of 139.69 trillion won on June 4, but as of July 28, they had fallen to 107.20 trillion won, a decrease of more than 32 trillion won in less than two months. The credit transaction financing balance representing the scale of market financing transactions fell to 33.19 trillion won during the same period, a decrease of about 4.5 trillion won from the peak of 37.72 trillion won set on July 2, a decrease of about 12 trillion won %
The shock in Korean stocks deterred investors: Investors' deposits plummeted by more than 35 trillion won in 2 months
Affected by the sharp fluctuation in the Korean stock index, in July, the average amount of investors' daily deposits (Daily Planet Daily Note: Investor deposits refer to funds deposited by investors into securities company accounts to buy stocks. Here are daily average statistics) plummeted by nearly 20 trillion won from the previous month. This level is about 10 trillion won less than in March of this year (Odaily note: at that time, due to the US-Iran conflict, the KOSPI index was drastically revised)
According to the Korea Financial Investment AssociationData released on August 3As of the 30th of last month, the day the KOSPI index hit a phased low, the amount of investor deposits was 104.6584 trillion won. Compared to the record high of 139.6948 trillion won on June 4, it was reduced by more than 35 trillion won in just two months.
Judging from the news previously mentioned that 85% of household loan lines have been used in the first half of the year and the Bank of Korea's interest rate hike, the liquidity of the Korean stock market will also face a wave of contraction in the short term.
Korean stock regulators take action: individual stock leveraged ETF trading margin was tripled to use the “right to emergency intervention”
The “bloody July” of Korean stocks forced the financial supervisory authorities to seek various measures to minimize the high volatility of the stock market and the high pressure of leverage. Specifically, the Financial Services Commission and the Financial Supervisory Authority in South Korea are joining forces to influence the market in terms of legislation and restrictions on margin thresholds for leveraged transactions.
South Korea's Financial Services Commission may be granted “emergency intervention rights”: limit leveraged ETF multiples and set investment caps
The Korea Financial Services Commission (FSC) and the Financial Supervisory Service (FSS) have initiated legal revisions related to the Capital Market Law, focusing on single-stock leveraged ETF products that are thought to amplify volatility during the recent stock market crash. They plan to introduce regulatory measures including adjusting leverage multiples and setting investment limits, and use “emergency intervention rights.”
Currently, some single-stock leveraged ETFs in the Korean market use up to 2x leverage. The regulatory authorities are discussing whether to allow temporary reduction of the leverage ratio in the event of abnormal market fluctuations to reduce the risks caused by concentrated capital transactions. (This plan refers to recent regulatory measures in Hong Kong. The Hong Kong Securities and Futures Commission previously allowed institutions that meet asset management capabilities, risk control standards and information disclosure requirements to make multiple adjustments to listed leverage and reverse products to provide space for monitoring market dynamics.
South Korean regulators believe that under the current system, matters involving changes in the income structure may require approval by fund holders' meetings, making it difficult to meet the demand for rapid response in extreme market environments. Therefore, it is planned to establish an emergency monitoring mechanism that can be initiated without complicated procedures.
In addition, South Korea's financial supervisory authorities are also considering setting individual investment quotas for single stock leveraged ETFs, uniformly controlling investment limits at about 20% to prevent excessive concentration of capital, and introducing an actual trading simulation system to improve investors' understanding of the risks of leveraged products.
South Korea's regulatory authorities said that the increase in basic security deposits is mainly to raise the investment threshold, while the investment quota limit is equivalent to setting an “upper limit” on capital inflows, and the two will form a complementary risk control system.
Earlier, data from South Korea showed that on the first day of implementation of the new regulations, the 16 relevant leveraged ETFs traded about 3 trillion won, only about a quarter of the 12.4 trillion won on the previous trading day, down about 80% from the 15 trillion won level on July 29.
First day of tightening leveraged ETF trading in South Korea: turnover plummeted 75%
According to Korean media reports, the total turnover of 16 individual stock leveraged ETFs was 3.3071 trillion won on the first day that the Korean financial supervisory authority imposed restrictions on individual stock leveraged ETFs (the minimum deposit requirement for investors in single-stock leveraged ETFs was raised from 10 million won to 30 million won from July 31). This figure is a sharp drop of 75.3% from the July 30 data (12.4485 trillion won). Compared with the average daily turnover of 12.27 trillion won in July, the financial supervisory authority's strong control measures also clearly had an immediate effect in curbing capital flows.
Excluding inverse products, the turnover of 14 major individual stock leveraged ETFs also fell by 64.4%, from 6.9354 trillion won on July 30 to 2.4686 trillion won.
It is worth mentioning that currently the Korean stock market generally regards individual stock leveraged ETF funds as the “culprits” associated with this sharp decline. Many people think that these individual leveraged ETF funds (such as SK Hynix) have increased market fluctuations and caused investors to lose billions of dollars.
Director of the Policy Office of the President of the Republic of KoreaKim Yong-beomLee Jong-bae, a conservative former member of the Seoul Metropolitan Government supported by the opposition National Power Party, has officially filed a relevant criminal lawsuit against him because he was previously suspected of promoting the listing of leveraged ETFs linked to a single semiconductor stock and suspected of abusing power, coercion, and obstruction of business. This dude was the official who said “we should stop the listing of individual leveraged ETFs and let them get past my dead body.” He also made a farce about the “Korean version of the common wealth rumor” because of “a proposal to distribute AI profit dividends to all South Korean citizens,” and finally settled down with South Korean President Lee Jae-myung's clarification. For details, see“Korea's Financial Trouble: Samsung Strike, AI Communism, and the Great Loss of Blood in the Cryptocurrency Industry”
Stock market conditions affect presidential status: Lee Jae-myung's approval rating falls to the lowest point during his term
Affected by the above market shocks, South Korean President Lee Jae-myung, who has always encouraged people to “stay away from speculating on houses and participate in the stock market,” has also been negatively affected.
A poll released today shows that due to disputes such as the stock market crash, South Korean President Lee Jae-myung'sThe approval rating fell to its lowest level since taking office in June last year. According to this poll conducted by Realmeter and commissioned by the media EKN, South Koreans' positive reviews of Lee Jae-myung fell 0.4 percentage points to 45.9% from the previous week, which is also the third consecutive week of decline; South Koreans' negative reviews of Lee Jae-myung rose 1 percentage point to 50.5%, breaking through the 50% key level for the first time.
Another poll conducted by the same polling agency showed that the ruling Communist Democratic Party's approval rating was 45.1%, up 3.8 percentage points from the previous week; while the approval rating of the main opposition party, the National Power Party, fell 2.9 percentage points to 37.7%.
I can only say that when the market rises, the president who encourages stock trading is as sought after as Grandpa Fortuna; when the market falls, the president is also the biggest supporter.
Looking at the face of Korean stocks: After foreign investment bottomed out, Damo gave an “overrated” rating
After experiencing a continuous downturn throughout July, Korea's KOSPI Index surged more than 17% intraday on July 31, the biggest one-day increase in history. Although some investors are optimistic that this round of rebound is a “signal bomb” for a reversal of market trends, some market experts believe that the fragile structure of the Korean stock market, which is easily affected by foreign capital flows and is highly volatile, has once again been verified. In the end, this round of rebound may just be a “dead cat rebound.”
According to the data, just over two minutes after the opening of the day, net purchases of Korean stocks by foreign investors reached 1.6 trillion won; by the close, net purchases of foreign investors had accumulated 7.18 trillion won throughout the day, setting a record high of 7.18 trillion won. Meanwhile, Korean individual investors had net sales of 8.2 trillion won, which also set a record for the highest single-day net sales in history.
In other words, Korean shareholders and foreign shareholders had a “silly X” moment last Friday.
Morgan Stanley raised the Korean stock market rating to overrated, and there may be room for a 36% increase in the future
Today, Morgan Stanley upgraded South Korea's stock rating from flat to overrated, calling it a recent “clearance of leverage”, providing investors with a better entry opportunity to participate in artificial intelligence trading and industrial supercycle topics.
Strategists such as Daniel K Blake believe that the KOSPI index still has room to rise 36% from its target of 9,000 points due to crowded transactions and drastic liquidation of leveraged positions.
In terms of details, analysts believe that the recent sell-off was “mainly due to technical factors,” adding that “the deleveraging process for leveraged ETFs, hedge funds, and retail margin trading is halfway through.” Morgan Stanley expects the KOSPI index to fluctuate between 5,500 points and 10,500 points in the short term, and believes that Samsung Electronics and SK Hynix will provide valuation support to the market; stocks in industries such as industry, defense, and finance are expected to benefit from favorable factors.
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