Individual investor sentiment still week despite Korea’s strong stock market

The overall stock market environment in South Korea remains subdued despite the strong benchmark Kospi that is hitting annual highs, with prospects that trading volume will fall.

According to the Korea Exchange on Wednesday, major indices that show stock liquidity have been on a decline since April.

The trading value of Kospi, Kosdaq, and Konex markets that reached 24.5 trillion won ($18.7 billion) on April 3 fell to 18.7 trillion won on Wednesday when the Kospi surpassed the 2,600 threshold for the first time in one year.

The turnover ratio of market value, which shows how active shares are on trade, also fell to 0.75 percent from 1.04 percent during the same period.

Stock deposits, or standby funds, stood at 50 trillion won on Wednesday, hovering below the average of 51.6 trillion won between April 3 and June 2.

The weak investor sentiment and outflow of funds are seen as unusual given the soaring Kospi.

The benchmark index has climbed 17 percent this year. In April alone, Kospi gained 5.6 percent. The index closed Wednesday at an annual high of 2615.6.

The secondary Kosdaq, a market favored by individual investors, also soared by 29 percent this year on the back of a rebound in secondary-battery stocks.

Industry watchers have been paying attention to the reasons for such inverse patterns between market indices and actual returns, as different players have driven market liquidity since April.

In the first quarter, retail investors were active traders, especially of secondary-battery stocks. However, their trading activity has waned since April and foreigners began large-scale buyouts of chip stocks, leading to a turnover decline.

“The liquidity is low in a market led by foreign investors, but indices keep going up regardless of fundamentals,” said Chung Myung-ji, head of investment information at Samsung Securities Co.

The combined net profit of Kospi-listed companies is projected to fall by up to 30 percent on year in the second quarter but the Kospi has remained above the 2,600 mark after it touched the threshold on Tuesday.

The weak investment sentiment among individuals comes on the rise in the prices of Kospi-listed stocks.

Market insiders consider the price to earnings ratio (PER) high when it exceeds 13 times the earnings and the current PER is measured at 14 times.

There are also a lack of theme stocks that can attract a buying rally from individual investors.

“The government policy to foster new industries or seek export diversification can lead to a rise in theme stocks, but we haven’t seen such a policy move,” said Choi Yoo-june, an analyst at Shinhan Securities Co.