Investor Deposits Hit Record Low, Retail Investors Leaving the Stock Market

US Fed Tightening Stance and Recession Concerns Freeze Investor Sentiment
Experts Say "Need to Watch European Energy Ministers Meeting and US FOMC Report"

[Asia Economy Reporter Minji Lee] Individual investors are withdrawing from the stock market. Although the stock market showed a slight rebound last month, increasing individual stock buying, investment sentiment has frozen due to the U.S. Federal Reserve's (Fed) strong tightening stance and growing recession concerns. As risk aversion intensifies, investor deposits, which serve as standby funds for the stock market, have fallen to their lowest level of the year, while individual investors' bond buying sentiment is strengthening.

◆ Investor Deposits Fall to 52 Trillion Won Level

According to the Korea Financial Investment Association on the 8th, as of the 6th, investor deposits (excluding on-exchange derivatives trading deposits) stood at 52.0425 trillion won, the lowest level this year. Investor deposits are funds entrusted by investors to securities firms and represent standby funds that can flow into the stock market at any time. In January this year, investor deposits nearly reached 70 trillion won, but after falling below 60 trillion won in May, they have now dropped to 52 trillion won.

Due to the Fed's strong tightening policy and recession concerns, the KOSPI index has dropped more than 20%, sharply shrinking individual investors' appetite for risky assets. Although the index briefly rose from near 2300 in July to 2500, slightly increasing deposits, the strong dollar trend and rapid foreign investor outflows from the domestic stock market caused the index to slide again, prompting individuals to exit the stock market and move funds to other assets. This is evident in individual bond purchases: from the 1st of last month to the day before, individuals bought over 4 trillion won worth of bonds in the over-the-counter market, with cumulative purchases this year approaching 12 trillion won.

◆ European Energy Ministers' Meeting: Wait and See After U.S. FOMC

Stock experts advise monitoring Europe during the holiday period and then reacting after confirming the results of the U.S. FOMC (Federal Open Market Committee). Currently, the domestic stock market is experiencing a steep decline amid the U.S.'s strong tightening stance, recession concerns in Europe and China, a strong dollar, and a weak Korean won. Upcoming events are expected to determine the dollar's direction.

Key events to watch during the holiday are the ECB meeting scheduled for the 8th and the energy ministers' meeting the following day. One main reason for the strong dollar is the widening gap in government bond yields between the U.S. and Germany due to differing monetary policies of the Fed and the European Central Bank. If the anticipated giant step (a 75 basis point rate hike) does not occur at this ECB meeting, it could trigger further euro weakness, solidifying the dollar's strength. The energy ministers' meeting is also important. Europe's energy crisis is heightening recession fears, so if a gas price cap is set to ease electricity costs, it could somewhat alleviate concerns about economic downturn.

Seunghoon Lee, a researcher at Meritz Securities, explained, "The surge in gas prices following the outbreak of war has caused manufacturing disruptions, weakened household purchasing power, and sluggish consumption, intensifying eurozone economic concerns and euro weakness. Introducing a gas price cap through fiscal subsidies to reduce energy price burdens is the best scenario under current circumstances."

At the September FOMC scheduled for the 21st, the magnitude of the rate hike must be confirmed. The market is leaning toward a 75 basis point increase. While a 75 basis point hike could resolve uncertainties, three consecutive high-level hikes are unfavorable for the stock market in the long term. On the other hand, there is a possibility of a 50 basis point hike due to concerns about excessive tightening. After Fed Vice Chair Lael Brainard stated, "Monetary tightening has proceeded rapidly recently, and policy lags may occur, raising concerns about risks related to over-tightening," the U.S. stock market showed a slight rebound.

Ilhyuk Kim, a researcher at KB Securities, analyzed, "The U.S. stock market rebounded as factors pressuring the market, such as dollar depreciation and easing tightening concerns, temporarily eased, but this is likely a short-term rebound. Considering the future, since confidence in the economy is not strong, investors should take this opportunity to reduce exposure to cyclical sectors and increase exposure to defensive sectors."

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