As the KOSPI index begins another rally, attention is focusing on supply and demand in Korea's stock market. Brokerages say the role of the household with spare cash is growing, and personal funds could play a key role in lifting the market.
For now, compared with foreigners and institutional investors, personal funds still tend to trade short term, but there are signs of a shift in individual risk appetite as retirement pensions flow into the market.
Lee Sang-yeon, a researcher at Shinyoung Securities, said, "Given the expansion of tax-based investment tools such as retirement pensions and individual savings accounts (ISA), the growth of the indirect investment market centered on ETFs, and the policy-driven push to revitalize the capital market, the trend of personal funds moving from direct to indirect investment and becoming institutionalized could strengthen."
Lee analyzed, "If funds from individual investors shift from a short-term to a long-term trading inclination, it could ease volatility in market supply and demand and help narrow the valuation discount in the domestic market."
First, the government has recently rolled out various policies to convert household assets concentrated in real estate and other nonfinancial assets into financial assets. Representative examples include creating the Public Growth Fund, boosting issuance bills and integrated investment accounts (IMA), and introducing Korea-style business development companies (BDC).
In particular, household deposits remain high, and brokerages say there is ample latent cash on the sidelines that could flow into the domestic market if investor sentiment improves.
As of February this year, household bank won deposits totaled 148.5 trillion won. Experts say this money is regarded as latent cash on the sidelines that could flow into the market.
The same goes for individual investors' overseas stock investing. Lee explained, "Rather than viewing the current expansion of overseas stock investment solely as an outflow of domestic funds, it is more appropriate to interpret it as latent capital that implies the potential to flow into the domestic market in the future."
If improved earnings momentum in the domestic market, expanded policy support, and reduced market volatility come together, there is ample potential for some of the funds previously allocated overseas to flow back into the country.
In the past, institutional investors such as pension funds and asset managers led the market, but recently the center of supply and demand has been gradually shifting as individual participation has expanded. In particular, since 2020, direct investing by individuals has increased, and as the exchange-traded fund (ETF) market has grown rapidly, the channels for capital inflows have also become more diverse.
While a larger share of individual investors in the market was once interpreted as a factor that increases index volatility, recent changes in the environment require a reassessment of that view.