Global stock markets are rallying to new highs — so why isn’t Korea’s?

Posted on : 2024-05-22 17:07 KST Modified on : 2024-05-22 17:07 KST
The lagging domestic stock market has many Korean investors moving their money abroad
A trader on the floor of the New York Stock Exchange wears a hat to mark the first time the Dow closed above 40,000. (AFP/Yonhap)
A trader on the floor of the New York Stock Exchange wears a hat to mark the first time the Dow closed above 40,000. (AFP/Yonhap)

“The Korean stock market just seems hopeless.” It’s a common complaint among small-time investors in the KOSPI and the KOSDAQ, Korea’s leading stock indices. 

Despite a government stimulus package, Korean stock prices remain depressed as numerous investors set their sights on overseas stocks, including those in the US. That’s prompting fears about an erosion of the Korean capital market. 

In fact, there are clear indications that Korean equities aren’t in the same ballpark as the global equity market. Korea’s benchmark KOSPI index fell 0.65% on Tuesday to 2,724.18 at the end of trading. The KOSPI is up 2.6% from the end of 2023 (2,655.28), while the KOSDAQ has actually fallen by 2.3%. 

This is a stark contrast to the situation overseas. Strong corporate performance and expectations about lower interest rates have breathed new life into equities, pushing markets to new heights. 

On the New York Stock Exchange, for example, the Nasdaq index closed the day Monday at 16,794.87 for an all-time high at the close. The Dow Jones Industrial Average has also been roaring ahead, reaching the 40,000 milestone for the first time on May 17. 

Japan’s Nikkei 225 has risen 16.4% this year as of Tuesday. 

Trends such as these are motivating retail investors to turn their backs on the Korean stock market. 

According to statistics from the Korea Exchange and the Korea Securities Depository, retail investors have sold off 9.69 trillion won worth of stock on the KOSPI and the KOSDAQ this year as of Monday. In the same period, domestic investors had bought up US$5.74 billion in foreign stocks.  

In a blog on individual investors’ investments in foreign stocks released in March, the Bank of Korea assessed that “the proportion (based on balance) that individuals make up in private sector foreign stock investments rose from 7.3% at the end of 2019 to 20% by the end of 2023, putting individuals on par with institutional investors as agents of investment.” 

The CEO of an asset management company described the Korean market as “malformed.”  

“Unlike in the US and elsewhere, investors are hard-pressed to find rapidly growing companies on the Korean stock market, and the volatile subprime stocks are actually being overvalued,” they said.  

A bureaucrat at an economic agency well-versed in international finance markets told the Hankyoreh: “If investor flight speeds up, companies will follow suit and head to stock markets like the US ones where it’s easier to raise capital, rapidly deteriorating the base of the local market.”  

By Park Jong-o, staff reporter 

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