South Korea’s stock market is losing steam as liquidity shortages and waning investor confidence weigh heavily on trading activity. Expectations for stock price growth have sharply declined, with margin loan balances falling to 16 trillion won ($11.42 billion), the lowest level recorded this year. Margin loan balances represent funds borrowed by individual investors from securities firms to purchase stocks, often with the anticipation of future price gains.
The Korea Exchange reported a significant drop in the average daily trading volume, which hovered between 22 trillion and 23 trillion won ($16.41 billion) at the start of the year but recently declined to 15 trillion to 16 trillion won ($11.42 billion). Trading volume, a critical indicator of market participation, reflects a slowdown in activity, highlighting diminished interest and trust among investors.
Data from the Korea Financial Investment Association (KFIA) as of Nov. 20 showed that margin loan balances fell to 16.69 trillion won ($11.9 billion), marking the lowest figure this year. This total includes 9.85 trillion won ($7.02 billion) in the Korea Composite Stock Price Index (KOSPI) market and 6.84 trillion won ($4.88 billion) in the KOSDAQ market. For three consecutive days, the balances have remained in the 16 trillion won range, dipping below 17 trillion won for the first time in two months. This decline underscores weakening investor sentiment and a retreat from aggressive trading strategies. Concerns over high market volatility have left investors hesitant to take significant risks, opting instead for short-term speculative trades aimed at quick profits through brief rebounds.
Additionally, unsettled receivables in securities trades have exceeded 1 trillion won since August and remain at elevated levels, according to the KFIA. Forced sell-offs due to unpaid receivables have surged into the hundreds of billions of won. Receivables left unpaid within three trading days, including the day of purchase, are subject to forced liquidation, further straining market liquidity.
As the KOSPI continues to stagnate, some investors have turned to leverage in hopes of profiting from short-term market rebounds, only to face mounting debt as stock prices fail to recover.
Experts in the securities industry attribute part of the liquidity drain to retail investors—often referred to as “ant traders”—shifting their focus to cryptocurrencies. Analysts note that daily trading volume on domestic cryptocurrency exchanges now nears 20 trillion won ($14.28 billion), surpassing the combined daily average trading volume of the KOSPI and KOSDAQ at 16 trillion won. A securities industry representative explained, “It is widely accepted within the industry that cryptocurrencies such as Bitcoin are diverting funds away from the stock market.”
Cryptocurrencies, which trade 24/7 and require minimal analysis compared to equities, have gained popularity among retail investors due to their lower barriers to entry and potential for rapid returns.
A 30-year-old office worker, identified by the surname Lee, shared their personal experience: “After more than a year of holding KOSDAQ stocks without seeing any profits, I decided to cut my losses and shift to cryptocurrencies. The returns from crypto investments have been significantly better.” Bithumb, a leading cryptocurrency exchange in South Korea, reports over 2,000 new daily user registrations, reflecting a sharp rise in interest.
The migration of funds to alternative assets like cryptocurrencies is reshaping South Korea’s financial landscape. With younger investors increasingly favoring cryptocurrencies over domestic equities, the age profile of stockholders in the market is skewing older, exacerbating concerns about the long-term vitality of the stock market.
