Shinhan Investment Corp: "Next Year, Individual Stock Investment Will Expand Further... Supporting the Index's Lower Bound"

[Asia Economy Reporter Minji Lee] Opinions have emerged that next year, the index floor will become more solid due to the inflow of funds from the expansion of individual domestic stock investments. This analysis is based on the expectation that abundant liquidity and changes in attitudes toward stocks have increased individuals' capacity for additional purchases.

According to Shinhan Financial Investment on the 27th, individual investors have purchased stocks worth 47.5 trillion KRW in the KOSPI market and 17.4 trillion KRW in the KOSDAQ market on a cumulative basis this year. In particular, the KOSPI rose by 35.6% this year, which is estimated to have been supported by the influence of the so-called ‘Donghak Ants’.

Choi Yujun, a researcher at Shinhan Financial Investment, said, “Individuals led the stock market this year by continuing a record-breaking net buying rally throughout the year, actively purchasing since the onset of the COVID-19 pandemic shock, resulting in unusually high returns. Although the proportion of individual investors decreased over five years since 2012 due to a box range market and trade disputes between the U.S. and China, considering the stock investment environment, the expansion of individual stock holdings is expected to continue.”

One of the factors supporting the expansion of individual stock investments is abundant liquidity. Korea has entered a structural low-growth phase and has maintained a base interest rate in the 1% range since 2015. The growth rate of broad money supply (M2) accelerated due to the continued low-interest-rate environment, and as market liquidity expanded, the amount of idle funds unable to find investment destinations reached an all-time high. This year, following the spread of COVID-19, the base interest rate was lowered and support measures amounting to 310 trillion KRW, about 16% of GDP, were implemented, causing asset prices to rise more rapidly than the real economy’s recovery speed.

Researcher Choi said, “The speed of liquidity expansion was several times greater than the growth rate, leading to capital inflows into asset markets and causing price increases. During economic recessions, there is a strong tendency to reduce consumption and accumulate funds, but this year, unusually, recession and asset price increases occurred simultaneously, leading to capital inflows into asset markets such as stocks.”

The perception that stocks are the only alternative for asset accumulation also supports the expansion of individual stock investments. Looking at the domestic real estate price trend, prices, especially for apartments in the Seoul area, have rapidly increased since 2018. Researcher Choi said, “Currently, for the middle class to buy an apartment in the Seoul area, they would need to save all their income without spending a single penny for 12 years, whereas two years ago it took 9 years. Given the stagnation in wage and business income growth and the annual household growth rate stuck at the 1% level, stocks must be considered central to asset accumulation.”

The steadily increasing dividend yield compared to deposit interest rates is also positive. Compared to the past, the stability of corporate earnings in the domestic stock market has improved, and shareholder-friendly policies have been strengthened, making the investment environment better. Researcher Choi explained, “Currently, the difference between expected stock returns and fixed deposit interest rates is not burdensome, and despite the sharp rise in stock prices, the attractiveness of stock investment due to low interest rates is high. The proportion of individual trading in the KOSPI is 65.5%, up 18 percentage points from the previous year, and with securities firms competing to attract customers and improved access to investment information, the inflow of individual investors is expected to accelerate.”

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