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[Feature] Fear of missing out: Psychology behind Kospi rally

Relative deprivation, changes in investment platform push retail investors to study, bet on markets night and day

The nickname “ants” has been used to describe South Korean retail investors, as a diligent but minor group seeking profit from the market with little in the way of knowledge or funds. The recent stock craze that pushed up the nation‘s main bourse Kospi, however, shows how those minor players are transforming.

Armed with abundant funds and wider access to limited information thanks to advanced technology, the ants are marching toward the territory of the institutional and foreign investors who have dominated the local markets for decades. The power that drives the ants’ tireless buying spree is associated with psychological factors -- that what they fear makes them strong.

Scholars and market experts here say that retail investors who long believed the price of labor to be the foundation of wealth accumulation fear being deprived of the unprecedented opportunity of soaring stock prices.

“The Kospi index hitting 3,000 points has triggered a fear of missing out, or FOMO -- being left out of the party,” said Yeom Seung-hwan, head of the e-business sales team of E-Best Securities.

“I can relate -- there is nothing else to do other than stock investing. The real estate market is too expensive; the interest rate is so low. I just hope they don’t get overexcited,” he said.

 


The growing interest in the stock markets reflects a major industrial shift from manufacturing to finance.

“Fundamentally, as the focus has shifted globally from the manufacturing industry to a finance market, people want to grow their income with investments,” said Kim Yun-tae, a public policy professor at Korea University. “At the same time, people face more uncertainty over their future income due to early retirement and high unemployment rate -- which has resulted in stock and property market booms,” Kim added.

Millions of ants have bought more than 100 trillion won ($90.7 billion) of stocks locally and globally from the beginning of last year through Jan. 15 this year. According to data from the Korea Securities Depository and domestic brokerages on Sunday, retail investors purchased a net 102.2 trillion won in a year and 15 days -- 77.8 trillion won in the domestic markets and 24.4 trillion won from overseas.

Now, the Kospi has seen even more small investors jumping in since the new year began.

According to the Korea Financial Investment Association, a self-regulatory organization for the financial sector, the number of active stock accounts soared from 35.48 million to 36.17 million within the first 14 days of 2021. Retail investors’ deposits for stock investments reached a record 72.3 trillion won as of Jan. 11, the first time it crossed the 70 trillion-won mark since related data started to be compiled in 1998.


Smart ants

While many factors -- be it FOMO, abundant funds backed by low interest rates or a lack of other investment options -- drive investors, what may be different this time is that the ants are eager to outperform markets, with an increasing number of retail investors turning to do-it-yourself investing.

Retail investors withdrew from professionally managed funds. The total balance of actively managed funds decreased from 21.25 trillion won to 15.63 trillion won on Jan. 12, in movements experts see as an exodus to invest directly themselves. Meanwhile, ant investors bought a net 10.5 trillion won in the first 12 days of the new year -- 4.5 trillion won on Jan. 11 alone.

Contributing to this trend is readily available quality information, especially on YouTube.

Lee Jun-young, a 32-year-old Seoulite, begins his day by tuning into 90 minutes of YouTube starting at 7:30 a.m. to get ready for the stock market opening. He spends several more hours of the day learning about domestic and overseas markets and individual companies, doing his best to beat the market. Lee, who invests with most of his savings as well as loans, said his motivation for investment came after a sudden increase in the housing price -- up 5.34 percent on-year, the fastest in nine years, according to the Korea Real Estate Board on Jan. 5.

“Watching the housing prices going up like that, I felt like I was becoming poorer with my monthly salary, so I had to do something,” Lee said.

Lee, an ant investor, now feels so much more confident than the first time he prematurely bought stocks in a bio company a few years ago in the midst of a bio boom. The difference now and then for Lee is that he is more equipped with market knowledge, which he attributes to the YouTube channels he follows.

One of the YouTube channels that Lee subscribes to, Three Pros, hosted by three investment professionals. The show typically airs live for 90 minutes at 7:30 a.m., 6 p.m. and 11 p.m., for the US market. Every morning, more than 50,000 people tune in to the live show, and the channel recently reached 1 million subscribers -- a whopping tenfold growth from January 2020.

“The current market boom is also attributed to platforms like YouTube, which contributed to getting rid of information asymmetry,” Yeom of E-Best said.


Officials at Korea Exchange celebrate during a ceremony to mark the benchmark Korea Composite Stock Price Index`s (KOSPI) breakthrough of the 3,000-point mark for the first time in its history on Jan. 7, 2021, when the index soared 63.47 points, or 2.14 percent, to close at 3,031.68 points.
Officials at Korea Exchange celebrate during a ceremony to mark the benchmark Korea Composite Stock Price Index`s (KOSPI) breakthrough of the 3,000-point mark for the first time in its history on Jan. 7, 2021, when the index soared 63.47 points, or 2.14 percent, to close at 3,031.68 points.

Taste of success

Widely available market information that investors can choose from coinciding with an upward market trend rewarded many retail investors last year. A recent Gallup survey of 1,000 people shows that 292 are currently investing in stocks and 69 percent of them made a profit in 2020. The research company pointed out that in six similar surveys conducted between 1990 and 2014, the proportion of those who lost money always outnumbered profit-gainers. Last August last year, gainers exceeded losers for the first time.

Experts emphasize that it is important for retail investors to have a successful experience to stay in the market in the future.

“Ant investors were so used to a tragic image of the stock markets due to continued failures over the past 30 years,” said Kim Hak-gyun, head of the research center at Shinyoung Securities. “So if they can taste success in the market, they will likely stay around and help buoy the market,” Kim noted, adding that lukewarm participation by small investors contributed to what is known as the “Korea discount,” along with the geopolitical situation with North Korea and high fluctuations in domestic corporate earnings and the low propensity for dividends.

“Without success this time, they are unlikely to come back for another next 10 years.”

By Park Ga-young (gypark@hearldcorp.com)



Staff reporter Shin Ji-hye contributed to this article. -- Ed.

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