"South Korean Stock Market Confirming the Power of Donghak Ants... Needs Inclusion in Overseas Indices to Progress Further" (Comprehensive)

"The Driving Force of This Year's Bull Market is Donghak Ants... Conditions for Long-term Investment Must Be Established"
Inclusion in MSCI and Other Developed Market Indices Enables Stable Foreign Investor Inflows

Park Young-sung, President of the Korea Capital Market Institute, is speaking at the discussion forum titled "Discussing the Current and Future of KOSPI's Record High" held on the 15th at the Korea Financial Investment Association in Yeouido, Yeongdeungpo-gu, Seoul, hosted by the Korea Exchange and the Korea Financial Investment Association. (Source: Screenshot from the live broadcast homepage of the Korea Financial Investment Association discussion forum)

[Asia Economy Reporter Minwoo Lee] An analysis has emerged that individual investors were the key players behind the KOSPI surpassing the 2700 mark and reaching an all-time high. It is also suggested that for the domestic stock market to secure stable upward momentum in the future, it needs to be included in major advanced country indices overseas.

On the 15th, the Korea Exchange and the Korea Financial Investment Association held a forum titled "KOSPI Record High: Discussing the Present and Future" at the Korea Financial Investment Association in Yeouido, Yeongdeungpo-gu, Seoul. Participants included Park Young-seok, President of the Korea Capital Market Institute; Kim Hak-gyun, Head of Research Center at Shin Young Securities; Lee Hyo-seop, Director of Financial Industry at the Korea Capital Market Institute; Kim Young-ik, Professor at Sogang University Graduate School of Economics; Kim Jung-beom, Head of Mirae Asset Daewoo; and Lee Seung-woo, Head of Hanwha Asset Management. They reviewed this year’s domestic stock market and discussed future growth strategies.

This Year’s Market Rally Hero: 'Donghak Ants'

Kim, who presented a comprehensive evaluation of this year’s stock market, emphasized that individual investors were the driving force behind the KOSPI breaking out of a decade-long stagnation to surpass 2700. While COVID-19 containment measures and strong performances by companies like Samsung Electronics contributed, individual investors’ participation led the KOSPI’s growth rate to rank 4th among 25 major countries worldwide since the outbreak of COVID-19. Kim said, “There is a saying that ‘when individuals buy, it’s the peak,’ but this year was an exceptional case where individuals lifted stock prices despite foreign and institutional selling. Previously, the stock investment craze appeared near market peaks, but this year was the only case where individuals increased their stock holdings from the bottom, providing a collective success experience that patience pays off.”

Kim estimated the actual capital inflow from individual investors at about 84 trillion won. He explained, “From 2005, when the stock fund craze began, about 96 trillion won flowed into the stock market over roughly four years. This year, the funds that previously went into stock funds have instead gone into direct investment.”

He also saw room for further growth. Kim analyzed, “The 12-month forward price-to-earnings ratio (PER) of the KOSPI is expected to reach a record high of 13.7 times, but it is still undervalued compared to global markets such as the U.S. (39.9 times), Japan (25.2 times), and China (15.1 times). Even considering the interest rate decline, domestic stock valuation is not low, but as global markets rise, there is additional upside potential for the domestic market.” However, he added a caveat that if global markets undergo corrections, Korea would not be able to avoid adjustments either.

Inclusion in Advanced Country Indices: A Driver for Further Growth

Lee Hyo-seop, Director of Financial Industry at the Korea Capital Market Institute, argued that to enhance the competitiveness of Korea’s stock market, it must be included in major advanced country indices overseas. This would secure a long-term and stable foreign investor base, reducing volatility. Lee said, “Inclusion in the Morgan Stanley Capital International (MSCI) advanced country index would secure a long-term and stable foreign investor base. To achieve this, it is necessary to consider establishing an offshore won trading market in the mid to long term.” He analyzed that while the net outflow would be about 140 trillion won if Korea is excluded from emerging market indices, inclusion in advanced country indices would bring in about 200 trillion won in net inflows, resulting in approximately 60 trillion won of stable foreign net buying. So far, MSCI has not included Korea in the advanced country index due to the absence of an offshore won trading market that allows 24-hour currency exchange.

Meanwhile, Lee also emphasized the need for pension funds to increase their allocation to risky assets such as stocks. He said, “Given the high likelihood of a prolonged global ultra-low interest rate environment, efforts to increase expected returns through expanding risky assets are necessary. It is important to consider revising pension fund benchmarks to increase investments related to Environmental, Social, and Governance (ESG) factors and risky assets.” He also pointed out the importance of non-face-to-face innovative asset management services that can grow household wealth, strengthening practical investor protection, and innovating market trading infrastructure.

Park Young-seok, President of the Korea Capital Market Institute, stressed, “For individual investors to reap benefits from the stock market, long-term investment is essential, so capital market participants must create conditions for diversified investment by expanding infrastructure. ESG will play an especially important role as a direction for long-term investment in the future.” This means that if corporate management operates with a long-term vision including environmental and social responsibilities, investors can trust and engage in long-term investment under such conditions.

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