Kospi, Kosdaq return to pre-pandemic levels with pensions, retailers jumping ship

[Graphics by Song Ji-yoon]

With no stop to foreign exodus, the last resort – retailers as well as public pension funds – are abandoning the Korean stock markets.

Kospi and Kosdaq are nearing pre-pandemic levels in early 2020 with brokerages downgrading resistance thresholds on weekly basis with little sign of easing in the bear run. Against last year¡¯s peak of 3,300, the Kospi is off 30 percent.

Kospi retreated 1.22 percent to close at 2,314.32 on Thursday, hanging barely above 2,300 level while Kosdaq lost 4.36 percent to end at 714.38, spooked by the warning of a recession from the U.S. central bank chief and U.S. dollar breach of 1,300 won that could worsen Korea¡¯s widening trade deficit and inflation.

Brokerages now see Kospi to fall to 2,000 and Kosdaq below 700.

Foreign investors this month already dumped Korean shares worth nearly 6 trillion won ($4.6 billion).

Pension funds which came to rescue at times of crisis have also jumped ship.

Domestic institutions have sold 70 billion won worth of Korean stocks this month alone, contrasting with their net buying of 3.03 trillion won in March 2020 when local stock market tumbled sharply on emergence of Covid-19 as a global pandemic.

National Pension Service, the big brother of institutions, no longer can be relied on.

It has capped the target for the share of Korean stocks in its investment portfolio at 16.3 percent for this year and 15.9 percent for next year. To meet the target, it would be shedding local stocks as they took up 16.9 percent at the end of March 2022.

Retail investors have turned weary as well, resulting in lackluster trade.

Daily turnover of Korean stock markets that averaged 20.7 trillion won in January thinned to 16.7 trillion won this month. Kospi turnover recorded annual low of 7.4 trillion won on Tuesday. Combined with Kosdaq, local stock markets saw the third lowest turnover for this year on the day.

Losses are triggering leveraged retail investors to unload their holdings.

According to industry sources, losses from leveraged stock investment neared 8 trillion won – 4.5 trillion won in Kospi and 3.3 trillion won in Kosdaq – as their holdings performed 20 percent below the main indices.

Investment from margin account requires investors to sustain equity collateral ratio of minimum 140 percent. Margin call is activated if underlying shares fall below the threshold.

The balance in margin account at brokerages dipped below 20 trillion won for the first time this year on Tuesday.

[¨Ï Maeil Business Newspaper & mk.co.kr, All rights reserved]