'Boxpi' trend leads to surge in profit-taking from stock selling

Like Yoo, many retail investors are busy profit-taking from stock selling as Seoul's benchmark Kospi index continues to move up and down between 3,000 and 3,200.

A corner for books on investment is empty at a bookstore in Gwanghwamun, central Seoul, on Thursday, as the stock market boom settles down following a slow in Kospi's growth. A staff member at the bookstore said fewer people have been looking for investment books as the Kospi continues to fluctuate. Retail investors are increasingly turning to short term purchase and sales of stocks for easy profit-taking. [YONHAP]

A 36-year-old office worker surnamed Yoo bought 80 SK hynix shares on Feb. 19 and then sold them all on Feb. 25, just six days after purchase. Over the six days, the stock's value had grown by some 9.7 percent. Through the sales, Yoo made around 1 million won ($885) in profit. After profiting with the chipmaker's shares, Yoo then bought 10 LG Chem shares.

"LG Chem share's prices had plunged by 6 percent, so I thought it was a chance to buy the shares at a relatively low price," Yoo said. "If I can make an 8 to 9 percent profit off the shares I plan to offload them right away."

Like Yoo, many retail investors are busy profit-taking from stock selling as Seoul's benchmark Kospi index continues to move up and down between 3,000 and 3,200.

Unlike at the end of last year or at the beginning of this year when the index continued to soar, it has recently been fluctuating quite actively. So rather than keeping stocks for a long time, retail investors have been buying when the Kospi falls slightly below the 3,000-mark and selling when the index bounces back up to around the 3,100-mark.

On Feb. 24 when Kospi fell from around the 3,100-mark to 2,994.98, retail investors net bought 561.3 billion won worth of stocks. On the next day, they turned to heavy net sellers as the index recovered to nearly 3,100. On Feb. 25, retail investors offloaded 1.94 trillion won worth of stocks.

Such pattern continued from the end of last month through last week.

"As it became difficult for retail investors to profit [from holding stocks] as stock prices fluctuate, they have made it a strategy to buy at low points and sell at high points taking advantage of the so-called boxpi situation," a source from a brokerage said.

Boxpi, a combination of Kospi and the word box, is an expression used to imply the bourse is boxed in, or unable to move above a certain threshold.

A similar trend was spotted in retail investors' purchase of local exchange traded funds (ETFs).

When Kospi reached near the 3,100-mark on Feb. 25, the most bought ETF by individual investors was "Kodex 200 Futures Inverse 2X." It is a product that offers 2 percent gains, when the Kospi 200 falls by 1 percent.

Heavy purchase of that ETF implies many retail investors assumed 3,100 is the upper threshold for Kospi.

On the same day, retail investors net sold 217.2 billion won worth of "Kodex Leverage" ETF that bets on the increase of stock prices.

Behind the retail investors' profit-taking movement is the belief that stock prices won't plunge in the near future.

"When a pattern is created in stock movement, retail investors' purchases trace that pattern," said Choi Yoo-joon, a researcher from Shinhan Investment. "[Recent selling by retail investors] reflects their belief that 3,200 is the upper threshold for Kospi and 3,000 is the lower threshold."

After punching through the 3,200 mark on Jan. 25, closing at 3,208.99, Kospi has been moving between 3,000 and 3,160 for over a month.

While U.S. policies to boost the economy and expectations for an increase in vaccinations are factors that drive up the local stock market, rising U.S. Treasury yields and heavy selling by pension funds have been pressuring it down.

Pension funds, for instance, net sold roughly 13 trillion won worth of stocks in the Kospi market over 44 trading days from Dec. 24 through March 3.

The short cycle in retail investors' purchase and sales of stocks can also be seen in statistics.

According to data from the Korea Exchange, stock turnover rate in the Kospi market last month was 52.85 percent.

It is the highest monthly figure in 15 years and seven months, since 59.19 percent was recorded in July 2005.

The rate is also more than twice the 25.2 percent turnover rate recorded in February 2020.

Stock turnover rate is calculated by dividing trading volume of stocks with the number of listed stocks. High turnover rate implies there were many short term purchases and sales of stocks.

Some analysts warn, however, that such short term profit-taking strategy doesn't always result in gains. If an investor misses good timing to buy and sell the stocks, it is sometimes better to just hold on to the stock for a while.

"If share prices fall below the expected lower threshold, such strategy can result in heavy losses for investors," said Huh Jae-hwan, an analyst from Eugene Investment & Securities.

BY HWANG EUI-YOUNG, KIM JEE-HEE [kim.jeehee@joongang.co.kr]