Korean retail investors have gone to speculate on US stocks!
In the past two days, the South Korean stock market has experienced consecutive declines. On November 11th, the South Korean Composite Index fell more than 1%, and on November 12th, the index fell another 1.94%. Chip stocks have experienced significant declines, with SK Hynix and Samsung Electronics both experiencing declines of over 7% in the past two trading days. Since the beginning of this year, the South Korean Composite Index has fallen by over 6%, making the South Korean stock market one of the worst performing stock markets in the world.
On the 12th, the South Korean official think tank, the Korea Development Institute, lowered its GDP growth forecast for the next two years. The think tank stated that Trump's return to the White House, which advocates for higher tariffs on imported goods, will increase the possibility of a worsening global trade environment in the future, which could pose a downside risk to the trade dependent South Korean economy.
At the same time, more and more Korean retail investors are selling Korean stocks and buying large tech stocks in the US. The latest data shows that the size of US stocks held by retail investors in South Korea has exceeded $100 billion for the first time, an increase of 64% compared to the entire year last year. Among them, Tesla and Nvidia have become the favorites of Korean retail investors. South Korean stocks have been neglected, with retail investors selling a total of 4.4 trillion Korean won (approximately 3.2 billion US dollars) worth of Kospi benchmark index stocks this year.
Korean retail investors speculate on US stocks
According to data from the Korea Securities Depository, as of November 7th, Korean retail traders held a total of $101.4 billion worth of US stocks, an increase of 64% compared to the full year of last year.
Bloomberg pointed out that more and more individual investors in South Korea are directly investing in US stocks in search of better returns, as the decline in the South Korean Composite Index has made it one of the worst performing stock indices globally this year. On the other hand, although the South Korean authorities have revitalized the local stock market by strengthening corporate regulations, retail investors have sold a net 4.4 trillion won worth of Kospi benchmark index stocks so far in 2024.
The favorite stock among Korean investors is Tesla. According to depositary data, as of last week, Korean retail investors held a total of $16.7 billion in Tesla stocks, as well as $13.8 billion in NVIDIA stocks, $4.6 billion in Apple stocks, and $3.6 billion in Microsoft stocks. On the secondary market, Tesla's stock price has risen by over 40% this year, with a latest market value exceeding $1 trillion; Nvidia has increased by over 190%, with a latest market value of $3.56 trillion. Apple and Microsoft have relatively smaller gains, at 17% and 11% respectively.
South Korean retail investors also have a high demand for leveraged exchange traded funds (ETFs) that track US technology stocks. Among the six largest assets they hold, one is a 3x long Nasdaq 100 ETF, and the other is a 3x long semiconductor chip ETF.
Recently, the main opposition party in South Korea stated that they will support the government's plan to abandon the capital gains tax on financial investments of retail investors, thus giving up the months long struggle against this controversial measure. The current situation of the South Korean stock market is too difficult, and we cannot ignore the position of the 15 million investors who are investing and relying on the stock market. Therefore, we have decided to agree to the measures being promoted by the ruling party and government to cancel taxes, "said Lee Jae myung, leader of the South Korean Democratic Party
The largest opposition party, the United Democratic Party, which holds a majority of seats in the South Korean National Assembly, once opposed the government's decision to cancel this tax, stating that it would benefit the wealthy and weaken the government's fiscal revenue. But in South Korea, retail investors are quite influential, accounting for about two-thirds of the daily trading volume of the stock market. These investors support the South Korean government's decision and believe that this measure will alleviate the negative impact of investor sentiment in the face of the underperformance of the South Korean stock market among Asian peers this year.
However, the above news did not rescue the decline of the South Korean stock market. In the past two trading days, the South Korean stock market has once again experienced a sharp decline. On November 11th and 12th, the South Korean Composite Index fell by 1.15% and 1.94% respectively. Since the beginning of this year, the South Korean Composite Index has fallen by 6.5%, making the South Korean stock market one of the worst performing stock markets in the world.
On the 12th, the South Korean stock market received another negative news - the official think tank in South Korea lowered its GDP growth forecast for the next two years. The Korean Development Institute, an official think tank in South Korea, released a revised economic forecast report on the same day, lowering its economic growth forecast for this year by 0.3 percentage points to 2.2% and its GDP growth forecast for 2025 by 0.1 percentage points to 2.0%.
The Korea Development Institute stated that it expects a slowdown in exports to weaken South Korea's overall economic growth next year, but domestic demand may gradually recover. The think tank stated that former US President Trump, who advocates for higher tariffs on imported goods, returning to the White House will increase the possibility of a worsening global trade environment in the future, which could pose a downside risk to the trade dependent South Korean economy.
Institution issues warning
Last Friday, all three major US stock indices hit historic highs, with the S&P 500 index breaking through 6000 points for the first time during trading and the Dow Jones Industrial Average breaking through 44000 points for the first time during trading. As of the close of the day, the Dow Jones Industrial Average rose 0.59% to 43988.99 points, with a cumulative weekly increase of 4.61%; The S&P 500 index rose 0.38% to 5995.54 points, with a cumulative weekly increase of 4.66%, marking the largest weekly increase since the beginning of the year; The Nasdaq rose slightly by 0.09%, with a cumulative weekly increase of 5.74%.
On Monday of this week, all three major US stock indices climbed to their highest closing points in history, with the Dow Jones Industrial Average rising 0.69% to 44293.13 points; The S&P 500 index rose 0.10% to close at 6001.35 points; The Nasdaq rose 0.06% to 19298.76 points. Since Trump's victory last Tuesday, the S&P 500 index has risen nearly 4%, while the Nasdaq index has risen nearly 5%. Tesla surged nearly 9% again on Monday, with a total market value of $1.12 trillion, rising to seventh place in the US stock market.
Since the beginning of this year, the Dow Jones Industrial Average, Nasdaq, and S&P 500 index have risen by 17.52%, 28.56%, and 25.82% respectively.
Recently, Pimco, one of the world's largest bond fund management companies, issued a warning that President elect Trump's economic plan could lead to an "overheating" of the economy and could force the Federal Reserve to stop cutting interest rates, posing a danger to stocks that soared after Trump's victory.
Pimco Chief Investment Officer Dan Ivascyn said that the rise in US stocks after the Republican presidential candidate's sweeping victory may reverse. The S&P 500 Index and Nasdaq Composite Index both soared to historic highs last week due to market expectations that Trump will cut taxes, relax regulations, and impose trade tariffs during his second term. But he warned that in the already "strong momentum" of the US economy, these "re inflation" policies could potentially trigger inflation.
Although Dan Ivascyn does not expect "massive inflation," he said Trump's policies can support long-term growth and warned, "We may certainly return to a point where the Federal Reserve becomes a bit concerned and the market begins to eliminate pricing for some rate cuts, so we believe this means being cautious about the valuation of risky assets
However, CITIC Securities pointed out that in the short term, the landing of the US presidential election will help eliminate market uncertainty, and US technology stocks are expected to continue their upward trend. However, Trump's unique style of action may also drive up market uncertainty; The fundamentals remain the core determining factor for the medium to long term trend of the technology sector, and the election is more of a short-term disturbance. Based on the benchmark assumption of an economic soft landing, it is judged that the technology sector in the US stock market is still in an upward performance cycle, and we continue to be optimistic about its performance in the next 12 months.
Guotai Junan (Hong Kong) stated that the uncertainty of US political maneuvering has abruptly come to an end with Trump's victory, and Trump's deal has cooled down. The new policy direction will be one of the main logic of market layout in the short term. From a historical perspective, except for the 2008 financial crisis, even if the US stock market showed volatility before the election, it usually returned to a stable upward trend within one to two months after the election day, and economic fundamentals would largely dominate the trend of the US stock market again. If there is a pullback in the market after election day, it is likely to be an opportunity to restructure at a low price.
It is worth noting that several Wall Street banks have recently lowered their expectations for the Federal Reserve to cut interest rates in 2025. Both Barclays Bank and TD Bank have mentioned that the Trump administration may impose stricter restrictions on immigration and increase import tariffs. They stated that these policies may stimulate inflation and alter the Federal Reserve's interest rate path.
The team led by Marc Giannoni, Chief US Economist at Barclays Bank, has raised its inflation forecast for next year and lowered its GDP forecast. They predict that the Federal Reserve will cut interest rates twice in 2025, previously estimated at three times.
TD Bank expects the Federal Reserve to maintain interest rate stability from January to July, giving officials time to assess the impact of Trump's new policies before resuming interest rate cuts as the economy slows down.
Goldman Sachs economists adjusted their forecasts based on Powell's remarks after Thursday's interest rate cut. The team led by Jan Hatzius stated that the Federal Reserve may wish to be more cautious in its actions. Goldman Sachs' new forecast is that the Federal Reserve will cut interest rates by 25 basis points at each meeting before March, with the final action taking place in June and September.