'KOSPI Money Circulation Blockage, Negative for 17 Months'... Retail Investors Who Experienced a Bull Market Are Rushing to Exit

[Asia Economy Reporter Lee Seon-ae] "There is a rush to exit mainly among individual investors who have only experienced a market that soared vertically due to abundant liquidity after COVID-19." The liquidity crunch in the domestic stock market is at a serious level. Individual investors facing a bear market continue to withdraw their funds. Trading volume has plummeted to the lowest level in two years, and investor deposits, which serve as standby funds, have also sharply declined. The problem is that individual investors, who have only experienced a 'bull market' and are now fearful, are unlikely to return to the stock market hastily, making the recovery of the 'financial circulation' seem distant.

According to the Korea Exchange on the 21st, KOSPI trading volume has fallen to the 5 trillion won range this month, signaling an unusual situation. On the 13th, KOSPI trading volume fell below 6 trillion won, recording 5.9985 trillion won. This was the smallest scale in two years and five months since February 17, 2020 (5.6392 trillion won). Compared to last year when the KOSPI index surpassed 3,000 and recorded 44.4338 trillion won on January 11, 2021, it has plummeted by nearly 90%.

Monthly trading volume, which reached 530 trillion won in January last year, decreased to 226 trillion won in January this year and further dropped to 178 trillion won last month. In July, cumulative trading volume barely surpassed 100 trillion won as of the previous day. The daily average trading volume is also at a dismal level. The average trading volume this month was recorded at 7.71561 trillion won. This is the lowest since January 2020 (6.5292 trillion won). Compared to the average of January last year (26.4778 trillion won), when the Donghak Ant Movement was active, it has shrunk by nearly 20 trillion won. Until the first half of last year, the daily average trading volume never fell below 15 trillion won.

Researcher Kang Dae-seok of Yuanta Securities diagnosed, "The ratio of monthly average KOSPI trading volume to market capitalization has remained in negative territory for 17 consecutive months. Considering that since 2000, there have only been four instances, including this one, where the ratio of trading volume to market capitalization decreased year-on-year for more than 12 consecutive months, this is an unusual level." He added, "Customer deposits, a potential source of trading volume inflow, are also rapidly declining."

As of the 19th, customer deposits were recorded at 53.4959 trillion won. Although it maintained 58 trillion won at the beginning of this month, it has been steadily decreasing. This is the lowest since November 9, 2020 (54.41 trillion won), just before the KOSPI sharply rose. Considering that it surged to 77 trillion won in May last year, 24 trillion won has evaporated.

Researcher Kang said, "Considering that customer deposits were below 30 trillion won before COVID-19, 53 trillion won is still high. However, given that the number of active accounts has tripled, customer deposits per account are effectively close to pre-COVID-19 levels." He pointed out, "As customer deposits per active account reach pre-COVID-19 levels, the seriousness of the decline in trading volume and stock market peripheral funds is increasing."

The reason trading volume is at rock bottom is that the market is in a bear phase with no positive factors, leading to strong investor caution. Lee Jin-woo, head of investment strategy at Meritz Securities, said, "There are no positive factors in the current market, and rather, the recent rebound is perceived as oversold." Researcher Kim Young-hwan of NH Investment & Securities said, "The unstable macro environment continues, deepening investor caution."

When will trading volume recover? Historically, KOSPI trading volume tends to recover two to three months after the stock price hits its bottom. Trading volume itself does not serve as an indicator to predict stock price direction. However, the fact that the momentum of stock price rises has increased during trading volume reversals is noteworthy, according to the securities industry. Considering the seasonal low of trading volume in August, a reversal in trading volume is likely to occur around September. Researcher Kang predicted, "If the KOSPI index bottomed out around late June to early July, the turnaround in trading volume is expected to occur around September." He added, "This also aligns with the seasonality where trading volume decreases until the summer vacation season in August and recovers from September."

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