As Korea's stock market plunged in the wake of U.S. and Israeli airstrikes on Iran, foreigners moved to sell heavily while individual investors instead bought the dip. Analysts said the number of so-called "smart Les Fourmis" is growing, seeing the downturn as an opportunity to buy rather than panic-selling.
On the 6th, according to the Korea Exchange (KRX), foreigners logged 4.6729 trillion won in net selling on the Korea Exchange market over two days on the 3rd and 4th. In contrast, individual investors posted 6.1404 trillion won in net buying over the same period, absorbing supply. Although indexes plunged due to the Middle East crisis, individual investors viewed the drop as a buying opportunity and went "index shopping."
The stocks that individual investors focused on buying were large caps that had fallen sharply. According to the Korea Exchange (KRX), the No. 1 and No. 2 net buys by individuals during this period were Samsung Electronics and SK hynix.
However, the day-by-day flow of funds showed some investor anxiety among individuals. On the 3rd, when the KOSPI index plunged more than 450 points on news of the Middle East crisis, foreigners sold more than 5 trillion won while individuals posted 5.8 trillion won in net buying. But when a nearly 12% plunge continued the next day, individuals started the session with about 1 trillion won in net selling. As the close approached and the index neared the 5,000-point level, they turned back to a net buy of 79 billion won.
Observers said the way individual investors handle market downturns is changing from the past. Previously, individuals often sold in panic during sharp sell-offs, but recently they tend to buy in zones seen as excessively sold.
Lee Sang-yeon at Shinyoung Securities said, "There was geopolitical risk, but analyses continued that the impact on corporations' fundamentals would be limited, and even in past downturns the losses tended to be recovered within a week at the latest," adding, "Taking this into account, individual investors appear to have bought strategically."
In fact, investor deposits did not shrink in the downturn and instead increased. According to the Korea Financial Investment Association, investor deposits hit an all-time high of 129.8188 trillion won on the 3rd. Investor deposits are cash set aside for stock investing, meaning "stock market dry powder."
Lee Kyung-min at Daishin Securities said, "The increase in investor deposits even during a downturn suggests that dip-buying sentiment among investors persisted," adding, "Seeing this index decline as an opportunity, more standby funds appear to have flowed in to meet the need to buy at the bottom."
The balance of margin loans—borrowing from securities firms to invest in stocks—also surged. On the 5th, the Korea Financial Investment Association said the balance of margin loans stood at 32.804 trillion won as of the 3rd, a record high.
However, some warned that with the margin loan balance having grown sharply, individual investors who rush in during a steep sell-off could see losses amplify.
When share prices fall and the collateral ratio on margin loans drops to 140% or below, securities firms demand additional margin; if the investor fails to meet it by the next day, the firm can forcibly liquidate the holdings at the lower limit at the market open on the following day (D+2). With the KOSPI having plunged 20% over the 3rd and 4th, analysts said investor risk from insufficient collateral is likely to rise.
Analysts also said the market could feel pressure if the structure of foreigners selling and individuals absorbing persists. That is because individual investors tend to have a relatively higher share of short-term speculative funds. According to Koscom ETF Check, from the 26th of last month to the 4th of this month, the top two exchange-traded funds (ETFs) by individual net buying were "KODEX Leverage" (1.0762 trillion won) and "KODEX KOSDAQ150 Leverage" (745.8 billion won).
Lee Sang-yeon said, "Funds from individual investors are sensitive to volatility, which can undermine the stability of flows," adding, "While inflows into the stock market are positive, the market needs plenty of medium- to long-term funds that can act as a safety net."