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| Korea Exchange (KRX) Chairman Sohn Byung-doo, left, speaks during a media conference at KRX, Seoul, Thursday. From right are KB Asset Management CEO Lee Hyun-seung, JPMorgan Chase Korea CEO Park Tae-jin, Korea Financial Investment Association (KOFIA) Chairman Na Jae-chul, Korea Capital Market Institute (KCMI) President Park Young-suk, SK Securities CEO Kim Shin, and Shinyoung Securities' research center chief Kim Hak-kyun. Courtesy of KRX |
Leveraged trading to be avoided to limit rapid loss
By Lee Kyung-min
The recent bullish market, driven chiefly by individual retail investors, can be a well-informed, rational choice for some to boost their assets amid a record-low interest rate. In addition it could be inevitable given households can no longer expect interest income from savings, combined with receding earnings prospects from real estate investment due to heavier regulations notably tighter lending rules, a brokerage research center chief said Thursday.
The stock investment craze in his view can be explained in part by Koreans increasingly embracing the once-shunned method of making money, due mostly to a collective sentiment long associated with speculators seeking one-off, windfall gains ending up with bankruptcy.
Shinyoung Securities' research chief Kim Hak-kyun said the high market volatility can be mitigated by long-term investment with money that can withstand severe cyclical swings, recommending against leveraged trading entailed more often than not by any profit and the initial investment being wiped out in a sudden bearish market.
Increases in dividends should help draw more investors ― both foreign and local ― and persuade them to retain shares in an unexpected sharp market downtrend. This is a policy that needs to be pursued by maintaining at least 30 percent in a dividend payout ratio of listed firms to bolster the benchmark KOSPI whose dividend yield ratio is only about 1 percent compared to China, Taiwan, Hong Kong, Germany and the U.K. with figures over 2 percent.
The dividend payout ratio is measured by the total amount of dividends divided by the net income of the company. The dividend yield ratio measures how much a company pays out in dividends each year relative to its stock price.
"Some 11.3 trillion won ($10.2 billion) made its way into the stock market in the first five trading days of 2021, whereas mutual funds that primarily invested in stocks saw about 253.3 billion won flow out in the same period. This is a strong indication of how an increasing number of people are choosing direct investment over passive mutual funds that involve a fee for asset managers," the research center chief said during a media conference organized by the Korea Exchange (KRX) to celebrate the KOSPI exceeding the symbolic 3,000 mark last week.
Money moving to the stock market, he added, is a well-judged, rational choice for households that largely remain net depositors as opposed to firms that are net borrowers, since the current cheap borrowing cost only serves the interest of businesses at the expense of many that long relied on the interest income from savings.
"Many self-employed and working families no longer view savings as a means of investment and quite understandably so," the chief researcher said.
Bank of Korea data cited by Kim showed Koreans had 4,300 trillion won in financial assets as of September 2020 with about 20 percent, or 852 trillion won, invested in the equity market and nearly half, or 1,900 trillion won, held in deposits in commercial banks.
Many holders of savings accounts turned to the equity market judging their "non-performing" funds will make no interest over time, he said. "I maintain a rosy outlook that the stock market will continue the rally for the time being. I hope this could be a meaningful precedent whereby investors learn that holding out in times of difficulty wins the race."
Kim was among the participants in the event, alongside Korea Exchange (KRX) Chairman Sohn Byung-doo who served as vice chairman of the Financial Services Commission (FSC), Korea Financial Investment Association (KOFIA) Chairman Na Jae-chul, Korea Capital Market Institute (KCMI) President Park Young-suk, JPMorgan Chase Korea CEO Park Tae-jin, SK Securities CEO Kim Shin and KB Asset Management CEO Lee Hyun-seung.
The high-profile panel of financial experts discussed the significance of the historic achievement and the projected future course of the of equity market whose rapid uptrend over the past few weeks culminated in surpassing 3,000 points for the first time, Jan 6. This took 13 years and five months after the KOSPI first broke through the previous significant 2,000-points mark in July 2007.
The KOSPI rose further to a high of 3,266.23 points, Jan.11, and closed at 3,149.93, Thursday, up 1.64 points or 0.05 percent from the previous session.
