Persistent 'Oeg-in Palja' in KOSPI, Growing 'Debt Investment' in KOSDAQ

KOSPI Foreign Ownership at 36.19%... Lowest in 1 Year and 4 Months
Sold Off 23.5 Trillion Won in 3 Months
KOSDAQ Margin Loans at 5.36 Trillion Won... Largest Since March 12

[Asia Economy Reporters Koh Hyung-kwang and Lee Min-woo] The proportion of foreign capital in the KOSPI market has fallen to its lowest level in 1 year and 4 months. This is interpreted as a result of continuous selling of stocks by foreigners in the domestic stock market since the outbreak of the novel coronavirus disease (COVID-19). Meanwhile, in the KOSDAQ market, the scale of investing in stocks with borrowed money is increasing, which is pointed out as a factor that heightens market volatility.

According to the Korea Exchange on the 25th, as of the closing price on the 22nd, foreigners held 480 trillion won out of the total KOSPI market capitalization of 1,324 trillion won. The share ratio based on market capitalization was 36.19%. This is the lowest level in 1 year and 4 months since January 15 last year (36.19%). The foreign ownership ratio, which maintained around 36-37% in early last year, gradually rose from the second half of last year and reached 39.30% on February 24. Since then, as the impact of COVID-19 intensified, it sharply declined within just three months.

Since the end of February, when the COVID-19 situation showed pandemic characteristics, foreigners have massively sold domestic stocks. From February 24 to April 22, a period of three months (61 trading days), foreigners sold a total of 23.5186 trillion won worth of stocks in the KOSPI market. During this period, foreigners recorded net buying on only 8 trading days, consistently maintaining a selling trend. In particular, from March 5 to April 16, foreigners continued a 30-trading-day consecutive selling streak, marking the second-longest net selling record in history.

Recently, the intensity of selling has somewhat eased. In February and March, when panic selling was at its peak, foreigners net sold an average of 568.9 billion won and 570.6 billion won per day in the KOSPI, respectively, but in April and this month, the average daily net selling amount decreased by half to 205 billion won and 243 billion won, respectively. However, experts diagnose that the net selling trend by foreigners is likely to continue for the time being. Kim Hak-kyun, head of the research center at Shin Young Securities, said, "When a global crisis emerges, foreign investors tend to withdraw funds from emerging markets like Korea and move them to safer places," adding, "Although the peak of foreign selling has passed, the Korean market is not yet in a situation where warmth is returning enough to shift to a net buying trend."

In the KOSDAQ market, so-called 'debt investing'?investing in stocks with borrowed money?is continuously increasing. According to the Korea Financial Investment Association, as of the 21st, the balance of margin loans (money borrowed from securities firms by investors to buy stocks) in the KOSDAQ market was 5.3687 trillion won. This is the highest level since March 12, when it recorded 5.4638 trillion won. On the same day, the balance of margin loans in the KOSPI market was 4.8561 trillion won. Considering that the market capitalization of KOSPI was 1,324 trillion won and KOSDAQ was 261 trillion won as of the 22nd, the proportion of debt investing in the KOSDAQ market is much larger.

The upward trend has also been steep. It has increased for 34 consecutive trading days since March 31. Compared to March 25, when the margin loan balance was at its lowest this year, it has increased by 2.0553 trillion won. During the same period, the margin loan balance in the KOSPI market increased by 1.7619 trillion won. In this process, the KOSDAQ index surpassed the 700 mark for the first time in about a year. It closed at 716.02 on the 21st and showed 708.58 the next day. This is the first time the KOSDAQ closed above 700 since June 27 last year.

This has led to an analysis that individual investors are increasingly engaging in short-term trading ('day trading') by investing in small and medium-sized stocks with high volatility in the KOSDAQ market rather than making long-term investments in large-cap stocks centered on the KOSPI market. From the beginning of this month to the 21st, 22 stocks in the KOSDAQ market saw their margin loan balance ratio increase by more than 3%. T플랙스 (T-Plex) had the highest change in margin loan balance ratio at 5.01%, followed by Pureun Technology (4.97%), Gukyoung G&M (4.59%), Samjin L&D (4.55%), Joa Pharmaceutical (4.49%), RnT Technology (4.48%), and Ocean Bridge (4.44%). In contrast, only five stocks in the KOSPI market saw an increase of more than 3%: Union Material, Sempio Foods, Union, Namseon Aluminum, and Shinil Electronics. Except for Namseon Aluminum, most of these were relatively small to medium-sized stocks with market capitalizations between 100 billion and 200 billion won.

Kim Young-ik, adjunct professor at Sogang University Graduate School of Economics, said, "The fact that the KOSDAQ, along with the US Nasdaq, has risen significantly compared to other stock markets worldwide this year clearly reflects the era change centered on technology stocks, but various unexpected variables still remain," adding, "Margin loans act as leverage that drives index rises when the market is good, but in a downturn, they can exacerbate index declines and become a factor that increases market volatility and instability."

This content was produced with the assistance of AI translation services.