Many Small Investors Lost Money in Stock Market Frenzy

Retail investors lost many of their gambles during the stock-market frenzy and made no profit on money they hastily borrowed from banks and brokerages.

It all began on March 19, 2020, when the Korea Composite Stock Price Index plunged to 1,439.43 points at one point in trading due to the coronavirus pandemic. But retail investors snapped up so many of the stocks that foreign and institutional investors were hastily selling that the index rebounded spectacularly.

The boom driven by retail investors propelled the KOSPI to over 3,000 points for the first time ever in the first half of 2021. More and more small gamblers jumped on the bandwagon, and at the end of last year there were 13.74 million retail investors who had money in the KOSPI, more than double the number in late 2019.

But the bonanza ended in a hangover. According to the Korea Exchange, retail investors bought W160.6 trillion worth of shares on the KOSPI and junior Kosdaq from 2020 until April 19 of this year (US$1=W1,135). But the rate of return on their top 10 favorite issues was -3.7 percent, mainly due to losses from Samsung Electronics shares, which were their favorite.

Kakao was left out of the tally because a stock split last year made it difficult to estimate the rate of return. 

The rate of return on Samsung Electronics ordinary shares, the No. 1 stock among retail investors with W50.1 trillion, was -6.5 percent, while preferred shares, which ranked second with W12.2 trillion, brought a -1.5 percent rate of return.

People who bought ordinary shares at their low point of W42,500 in March 2020 would have ended up making money. But those who bought them by the time they had risen to W91,000 in January last year suffered huge losses.

Other top 10 stocks also delivered losses. The rate of return on Hyundai Mobis was a dismal -21.6 percent, on LG Electronics -16.3 percent and on NCsoft -29.9 percent.

But retail investors who bought Hyundai Motor saw an 11.9 percent rate of return, on Naver 1.8 percent, on SK Hynix 13.4 percent and on Kia a whopping 36.8 percent.

The government and Korea Exchange ended up laughing all the way to the bank anyway. Tax payments by the Korea Exchange in 2020 and 2021 helped the government secure money to fund its lavish fiscal spending because everyone who sells stocks pays 0.23 percent transaction tax. Such tax revenues reached a record W12.4 trillion in 2020 and rose even further to W15.6 trillion last year.

The Korea Exchange's profits from stock transaction fees also increased. It charges a 0.0027 percent transaction fee and its profits increased from W371.4 trillion in 2020 to W598.6 trillion last year.

But the disappointing performance on the KOSPI and Kosdaq has driven more retail investors to the U.S. stock market or cryptocurrencies, so another windfall for the government and Korea Exchange seems unlikely.