Stock Market Rebound?... Trading Volume Halved Since Early Year

[Asia Economy Reporter Son Sunhee] The stock market has struggled to regain momentum even after the start of the new year. In particular, with a mass exodus of Donghak Ants, the average daily trading volume at the beginning of the year was only about half of that during the same period last year. This is because investment sentiment remains frozen due to ongoing tightening measures such as interest rate hikes and prolonged high inflation.

According to the Korea Exchange Information Data System, from January 2, the first trading day of the stock market this year, to January 13 (10 trading days), the combined average daily trading volume of KOSPI and KOSDAQ was 11.9486 trillion KRW. This is just over half of the average daily trading volume of 21.6361 trillion KRW during the same period last year. Compared to 2021 (46.5157 trillion KRW), it has sharply shrunk to about one-quarter in just two years.

The stock market experienced a boom in 2020 when the COVID-19 crisis broke out, as major countries rapidly injected money, leading to warnings of an 'asset bubble.' The domestic stock market also peaked in all aspects such as trading volume and trading value in 2021. However, the situation reversed sharply last year as the U.S. shifted to rapid tightening. Coupled with steep inflation, concerns about a recession caused investment sentiment to shrink from the second half of last year.

In the case of KOSPI, the average daily trading volume over 10 trading days including the first trading day of the new year during the boom period in 2021 reached 30 trillion KRW. It then sharply dropped to 11.2 trillion KRW last year and further declined to 6.7 trillion KRW this year.

Looking at trading performance by investor type, the withdrawal of individual investors was prominent. Individual investors sold about 3.3 trillion KRW worth of stocks in KOSPI alone since the beginning of this year. This is because they are exhausted from the prolonged downtrend and the dominant outlook is that the economy will worsen this year. Moreover, there are no newly listed stocks attracting investor interest, unlike LG Energy Solution, which raised the largest-ever public offering amount early last year. After receiving approval for listing on the KOSPI market, SK Shieldus and Hyundai Oilbank withdrew their IPOs, followed by Curly, which was considered a major player. Golfzon County and K Bank passed listing reviews in August and September last year, respectively, but their stock market debuts are still distant. Even companies that went public during the recession, such as Socar (offering price 28,000 KRW), Bionote (9,000 KRW), and Susan Industry (35,000 KRW), are performing poorly, trading at significantly lower prices than their offering prices?19,250 KRW, 8,410 KRW, and 26,450 KRW respectively (as of closing price on January 13).

The situation in the KOSDAQ market is not much different. The trading volume, which reached 16.8 trillion KRW on average daily basis in 2021 (based on the first 10 trading days of the year), dropped to 10.5 trillion KRW during the same period last year and further shrank to 5.3 trillion KRW this year, about one-third of the previous level.

However, it is reassuring that foreign investors have maintained steady buying momentum at the beginning of the year, net purchasing 2.7 trillion KRW (combined KOSPI and KOSDAQ) since the start of this year. Additionally, recent U.S. Consumer Price Index (CPI) has decreased for six consecutive months, indicating that inflation is gradually easing, and expectations are growing that the U.S. Federal Reserve (Fed) will slow the pace of interest rate hikes accordingly.

Han Ji-young, a researcher at Kiwoom Securities, said, "Market participants in January will continue to face existing negative factors such as the intensity of the recession, inflation level down, and Fed policy changes." However, she added, "It is important to remember that the year following a stock market drop of more than 20% recorded positive returns," and "Except for Korea's foreign exchange crisis and the U.S. dot-com bubble, there has never been a case of three consecutive years of negative returns in history." She further stated, "This year, the direction of the stock market will not be about continuously recording negative returns but will boil down to how much the rebound's momentum will be."

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