Stock Market with Even Lower Individual Share, Swayed by Institutional Supply and Demand

This Month's Individual Trading Volume Share at 66%
Significantly Lower Than January Last Year's 73%
Prolonged Foreign Net Selling, Increased Institutional Influence on Supply and Demand

[Asia Economy Reporter Minji Lee] As the outflow of foreigners continues for a long time, the firepower of individual investors, who had boosted the domestic stock market after COVID-19, has significantly weakened, strengthening the influence of institutional investors. Stock market experts advise that it is necessary to focus on the buying positions of institutional investors and devise investment strategies, as the stocks 'pinpointed' by institutions have higher potential for price increases.

	Total KOSPI Trading Value	Total KOSDAQ Trading Value	Total KOSPI Individual Trading Value	Total KOSDAQ Individual Trading Value	Individual Investor Trading Value Ratio
Jan 2021	?1059.1128 trillion	?624.7457 trillion	?691.9754 trillion	?546.6040 trillion	73.56%
Feb 2021	?687.4351 trillion	?477.8561 trillion	?437.7906 trillion	?420.1982 trillion	73.63%
Mar 2022	?312.3603 trillion	?225.7625 trillion	?172.1123 trillion	?185.7262 trillion	66.50%

According to the Korea Exchange on the 23rd, the proportion of individual investors' trading value this month (March 1?22) was about 66.5%. Considering that in January and February last year, when the KOSPI hovered around the 3000 mark, the individual trading value ratio reached 73.5% and 73.6% respectively, it is analyzed that the contribution of individual investors in the domestic stock market has significantly declined.

Indicators related to individual stock trading, such as margin loans and customer deposits, have also dropped significantly. As of the previous day, margin loans recorded ?21.4334 trillion, which is estimated to be a meaningful decrease compared to about ?23 trillion in January this year. With global stock markets showing sluggishness due to interest rate hikes and Russia's invasion of Ukraine, the enthusiasm for 'debt investing' among individuals is presumed to have cooled. Customer deposits also decreased by 12% to ?62.7866 trillion compared to early January (?71.7327 trillion).

Foreign investors have also reduced their influence in the stock market by selling more than ?8 trillion worth of domestic stocks since the beginning of this year. Foreign investors sold about ?5.6 trillion worth of stocks in the KOSPI market alone. As a result, the proportion of foreign ownership in domestic stocks shrank to the 31% range, significantly lower than the 36?37% in January last year. This is the lowest level since the global financial crisis.

Jinwoo Lee, a researcher at Meritz Securities, explained, “Foreigners have been net sellers of more than ?55 trillion since 2019, and in the past three years, foreigners have not been beneficial to the domestic stock market. Also, the principle that foreign demand turns at around the 1200 won level of the won-dollar exchange rate is not currently in effect, so it is difficult to expect a trend reversal to buying by foreigners immediately.”

Conversely, as individual and foreign investors continue to exit, the influence of institutional investors' supply and demand is increasing. Except for the period from 2020 to last year when individual influence grew after the COVID-19 pandemic, foreigners generally drove the rise and fall of the domestic stock market. However, as foreign investment proportions have dropped to the lowest levels, the importance of institutional supply and demand is rising. The correlation coefficient between KOSPI price increase rate and foreigners' net buying ratio over the past 10 years was -0.2, indicating no synchronization, but narrowing it down to the past year, it rose to 0.5, showing increased supply and demand weight. Foreigners' correlation was high at 0.5 in the past but dropped significantly to 0.1 in the last year.

Stock market experts say that for the time being, the market environment will inevitably be influenced by institutional supply and demand, so investors should focus on sectors where institutions are concentrating their supply and demand to devise investment strategies. Looking at institutional investment baskets this month, they include software, construction, distribution, and hotel-related sectors. Major stocks bought this month include LG Energy Solution (?333.1 billion), followed by NAVER (?195.7 billion), Kakao (?112.2 billion), Hotel Shilla (?65.7 billion), OCI (?62.2 billion), and E-Mart (?61.1 billion) in net purchases.

Kyungsoo Lee, a researcher at Hana Financial Investment, said, “The commonality among stocks with heavy institutional supply and demand is that they are deeply linked to earnings. Given the recent increased sensitivity to raw material prices, it is effective to approach stocks whose correlation between raw material prices and company profits is close to zero and whose recent earnings are improving.”

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