"Bargain Buying Opportunity" Korean and Chinese Retail Investors Jump into the Bear Market

[Asia Economy Beijing=Special Correspondent Park Sun-mi, Reporter Oh Ju-yeon] Individual investors in Korea and China are flocking to the stock market. Despite the global stock markets fluctuating, with the KOSPI plunging to the 1900 level due to the spread of the novel coronavirus infection (COVID-19), individual investors seem to view the declining market as an opportunity to buy stocks at low prices.

According to the Korea Exchange on the 11th, individuals net purchased a total of 3.8711 trillion won worth of stocks in the KOSPI market over seven trading days from the 2nd to the 10th of this month. This contrasts with foreign investors who sold 3.9536 trillion won and institutions who sold 246.7 billion won during the same period.

On the 10th, dealers were busy working in the dealing room of KEB Hana Bank in Euljiro, Seoul. On this day, the KOSPI index opened lower at 1,942.85, down 11.92 points (0.61%) from the previous trading day. Photo by Moon Honam munonam@

원본보기 아이콘

Compared to the end of last month when the impact of COVID-19 began to directly hit the stock market, the buying momentum of individuals is explosive. Expanding the period from the 24th of last month to the 10th of this month, the net purchase amount by individuals reached 6.4548 trillion won. This absorbed most of the volume sold by foreigners, who offloaded 7.4152 trillion won. Institutional net purchases were only 437.8 billion won. During this period, the KOSPI fell 5.58%, from 2079.04 to 1962.93.

On this day as well, individuals continued to buy stocks despite further declines in the KOSPI. As of 9:30 AM, individuals purchased 269.2 billion won worth of stocks in the KOSPI market. Notably, on the 9th, when foreigners sold a record-high volume of 1.3125 trillion won, individuals bought stocks with the second-largest purchase volume (1.27995 trillion won) since the Korea Exchange began storing electronic data in 1999.

This betting is interpreted as a 'learning effect' from past epidemics. When the KOSPI fell during the outbreaks of Severe Acute Respiratory Syndrome (SARS) and Middle East Respiratory Syndrome (MERS), stock prices rebounded as anxiety subsided. After the SARS outbreak at the end of 2002, the index dropped to the 510 level in March 2003 but rose to the 810 level by the end of the year. During the MERS outbreak, the index fell to the 1800 level in August 2015 but recovered to the 2000 level by October.

Funds waiting to enter the stock market have also exceeded 30 trillion won. According to the Korea Financial Investment Association, investor deposits reached 31.2124 trillion won at the end of last month, marking the highest month-end amount in the past year. Investor deposits refer to funds that investors have not withdrawn after selling stocks or have entrusted to securities firms to buy stocks, classified as funds waiting to be used for future stock purchases. Lee Kyung-min, a researcher at Daishin Securities, analyzed, "After extreme investment sentiment contraction, investment sentiment rapidly changed between fear and policy expectations."

A similar phenomenon is occurring in the Chinese stock market. According to China Securities Journal, since the 3rd of last month, searches related to how to open stock accounts surged on China's internet search engine Baidu. Especially from the 9th to the 16th of the same month, related search terms were most frequent in Wuhan, Hubei Province, where the COVID-19 outbreak was concentrated.

The Chinese people's interest in stock investment led to index rises and increased trading volume. On the 5th, the CSI 300 index rose 2.2% to 4206.72, marking the highest level in the past two years. From the 19th of last month to the 3rd of this month, the total trading volume of China's major stock markets, the Shanghai and Shenzhen Stock Exchanges, exceeded 1 trillion yuan (approximately 171 trillion won). On the 25th of last month, trading volume increased to a record high of 1.4 trillion yuan.

The reason Chinese investors jumped into the stock market amid COVID-19 fears is interpreted as a combination of trust that the virus can be controlled, expectations that the government will actively implement economic stimulus measures to revive the economy, and the judgment that the Chinese stock market is not overvalued. This contrasts with the global stock markets' turmoil caused by the recent COVID-19 spread.

Dong Dengxin, director of the Finance and Securities Research Institute at Wuhan University of Science and Technology, explained, "Despite the recent plunge in major countries' stock markets, China has not suffered significant damage because it has relatively independent monetary policy," adding, "The yuan is not yet an international currency, and China's 10-year and 30-year government bond yields remain at around 2-3%, and the stock market is undervalued."

© The Asia Business Daily(www.asiae.co.kr). All rights reserved.