Three Months After COVID Impact... Korean Stock Market's Rebound Rate Ranks Global 'Number 1'

[Asia Economy Reporter Koh Hyung-kwang] 2267.25 (Intraday on January 20) → 1457.64 (Intraday on March 19) → 2141.32 (Closing on June 19).

It has been three months since the KOSPI index passed its yearly low. Amid the turmoil in global stock markets caused by the novel coronavirus infection (COVID-19) shock, the Korean stock market showed the strongest resilience. Despite the increased uncertainty and pessimistic outlooks for the stock market following the COVID-19 pandemic, it quickly recovered and led a 'V-shaped rebound.' Compared to other major countries, Korea’s early containment of COVID-19 raised expectations for economic recovery, and aggressive buying by individual investors fueled by abundant liquidity became the driving force behind the stock market rebound.

According to the Korea Exchange on the 21st, the KOSPI index closed at 2141.32 on the 19th. This represents a 46.9% rebound from the year’s lowest point of 1457.64 on March 19, caused by the spread of COVID-19. After recovering the 2000-point level for the first time in about 50 days at the end of last month, it surpassed the 2200-point level intraday on the 8th of this month. It created a strong rebound, closely approaching the January high of 2267.25. The KOSDAQ’s rise was even more significant. As of the closing on the 19th, the KOSDAQ index was 742.03, far exceeding the pre-COVID-19 highest point of 692.64 (February 17). Compared to the lowest point three months ago (428.35), it surged by 73.2%.

The increase rates of KOSPI and KOSDAQ from their yearly lows were the highest among major global stock markets. The three major U.S. indices?the Dow Jones Industrial Average, the Standard & Poor’s 500 (S&P 500), and the Nasdaq Composite (as of the 19th)?rose 39.2%, 38.5%, and 45.0%, respectively, from their March lows. Germany’s DAX 30 index rebounded 46.1%, and France’s CAC 40 index rose 32.6%, but both fell short of the KOSPI’s increase rate.

Compared to Asian stock markets, the rise in the domestic market was even more pronounced. The Shanghai Composite Index in China recorded its lowest point at 2660.17 on March 24 and rose to 2967.63 on the 19th, but the increase rate was only 10.5%. During the same period, the Hang Seng Index in Hong Kong, Asia’s financial hub, rose just 13.6%. The Taiwan Weighted Index, which showed similar movements to the Korean market, increased 35.5% from its low, and Japan’s Nikkei 225 rose 35.8%, both lower than the KOSPI.

The clear rebound in the domestic stock market is attributed to the early easing of COVID-19 spread compared to other major countries, which quickly calmed investor anxiety. Additionally, individual investors, known as 'ants,' played a significant role by mobilizing enormous funds to absorb large-scale sell-offs by foreigners, acting as a pillar for the stock market. Kim Hak-kyun, head of the research center at Shin Young Securities, explained, "The Korean stock market had less price burden due to prolonged underperformance compared to major global markets, and individual investors aggressively bought, forming a strong rebound since the March low."

The government’s strong regulations that contracted the real estate market also pushed funds seeking investment into the stock market, driving the index upward. Individual investors recorded a historic net purchase of over 36.5 trillion won this year, with 29.4397 trillion won in KOSPI and 7.1232 trillion won in KOSDAQ up to the previous day. This is more than eight times the amount purchased by pension funds, known as the 'stock market saviors,' which bought 4.3749 trillion won this year (4.6576 trillion won in KOSPI, -282.7 billion won in KOSDAQ).

However, there is still ample standby capital in the stock market. As of the 17th, investor deposits in securities firms reached 46.228 trillion won, the highest ever. Due to the base interest rate cut, the balance of credit loans also reached 11.8386 trillion won. Combining investor deposits and credit loan balances, individual investors have over 58 trillion won readily available to invest in the stock market. Thanks to abundant liquidity, the trading volume in the stock market has also surged explosively. From the beginning of this year to the 17th, the average daily trading volume (KOSPI + KOSDAQ) was 18.028 trillion won, nearly double last year’s 9.299 trillion won.

Given these circumstances, there is a high expectation that the domestic stock market will maintain a strong trend for the time being. SK Securities and Eugene Investment & Securities forecast the KOSPI index to reach 2300 in the second half of this year, while Hi Investment & Securities and Yuanta Securities expect it to go as high as 2350. Hwang Se-woon, a researcher at the Capital Market Research Institute, said, "Global central banks, including Korea’s, have supplied massive funds due to COVID-19, creating abundant liquidity in the market. Since there are limited places for investment funds to flow, the stock market is also benefiting from this liquidity environment."

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