Retail Investors Net Bought 3.4 Trillion Won, Prefer Buying at Lows... Warning of Overheated Investment with Borrowed Funds

Capital Research Institute Analyzes Individual Buying Trends Up to May 29 This Year... "Investment Risk Is High"

[Asia Economy Reporter Hyungsoo Park] Individual investors have recorded a net purchase of 34.3 trillion KRW in the domestic stock market through the end of May this year. This amount surpasses the net purchase volume during the past financial crisis. It was found that individuals mainly invested in stocks with significant price declines.

On the 25th, Min-ki Kim, a research fellow at the Korea Capital Market Institute, released a report titled "Characteristics and Evaluation of Recent Individual Investor Stock Purchases," stating, "Stocks with a high net purchase ratio by individuals this year showed recent deteriorations in profitability, low growth and liquidity ratios, and high debt ratios and volatility."

The average monthly net purchase amount by individuals this year was 6.8 trillion KRW, exceeding the average monthly net purchase amount of 5 billion KRW during the past financial crisis. Although individuals were net sellers in the domestic stock market for about 10 years after the financial crisis, they have emerged as the largest net buyers in the domestic stock market this year.

Researcher Kim added, "From the perspective of net purchase amounts, individuals were found to have excessively purchased stocks with relatively poor fundamental conditions compared to the market portfolio."

Considering that companies with poor financial performance generally had relatively low stock returns, Researcher Kim evaluated that individuals preferred bargain buying due to stock price declines.

He advised, "Investing in companies with high investment risk without systematic risk diversification does not sufficiently eliminate tail risk," adding, "This can negatively affect mid- to long-term performance, so some caution is needed in investing."

He also expressed concern about the increasing number of individuals investing in stocks with borrowed money. The amount increased by about 4.4 trillion KRW from March 25, when the credit loan balance hit its lowest point, to the end of May, accounting for about 35% of the individual net purchase amount during the same period.

Researcher Kim said, "Short-term surge trading using leverage can result in greater losses when stock prices fall in a highly volatile market," emphasizing, "It is necessary to be cautious about excessive use of leverage."

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