Korean individuals flock to Kospi, Kosdaq amid low interest rates

The dealing room of Hana Bank in Myeongdong, central Seoul on April 18. [Photo by Yonhap]

Individual investors in South Korea are flocking back to the bullish stock market whose indices have advanced to the highest level since the second half of last year. Analysts warn, however, that the market is showing signs of overheating.

According to the Korea Exchange on Thursday, the total transaction volume on the main Kospi stood at 12.5 trillion won ($9.4 billion) on Wednesday and the secondary Kosdaq at 14.6 trillion won to total 27.1 trillion won, up three times from 10.85 trillion won at the end of last year.

Individual investors’ trading volume accounted for a large portion at 20.15 trillion won – 8.1 trillion won on Kospi and 12.95 trillion won on Kosdaq – tripling from 7 trillion won level at the end of last year.

Individual transactions accounted for 74.1 percent of the entire transactions, including 63.9 percent on Kospi and 82.8 percent on Kosdaq, up 9.88 percentage points from 64.22 percent at the end of last year.

“Individuals are leading the rise at the moment,” said Kim Soo-yeon, an analyst at Hanwha Investment & Securities Co. “The combined trading value of Kospi and Kosdaq has recently increased to about 30 trillion won, nearing the level of the first half of 2021, and individual transactions accounted for more than 73 percent of the entire transactions.”

The Kospi index exceeded 2,500, which was considered the upper end since the second half of last year, and the Kosdaq index also topped 900 in one year. The combined market cap of the Kospi and Kosdaq markets stands at 2,466.67 trillion won, up 38.4 billion won from 2,082.73 trillion won at the end of last year.

The stock market boost led by retail investors comes as individuals spent less on savings deposits and more on stock deposits following the decline in interest rates.

The average interest rate for one-year deposits fell to as low as 3.2 percent last week from 3.9 percent in December last year. Stock deposits, on the other hand, increased by more than 7 trillion won in two months to 52.89 trillion won on Monday from 45.89 trillion won.

Brokerages, in the meantime, warn that the local stock market is becoming overheated and a decline is possible.

“Some sectors such as secondary batteries are showing a typical bubble without reflecting the issues of an economic slowdown,” said Seo Sang-young, head of media content division at Mirae Asset Securities Co. “A break is needed.”