Last Friday, foreign investors poured money into Korean equities, turning from net sellers to net buyers and driving a record rally. Goldman Sachs is no less bullish, seeing strong growth in memory chips underlying the investment case.

With AI being the investment story of the moment, it’s no surprise that analysts see plenty of promise in Korea’s tech industry. However, institutional confidence stands in stark contrast to retail investor sentiment. High levels of volatility and sharp losses have put pressure on individual investors. As a share of trading value, retail investor participation reportedly fell by around 16-17 percentage points in the last six months.

Volatility was amplified by participation in single-stock leveraged exchange-traded funds, which also can amplify retail investor losses, as well as gains.

The fallout has direct political implications. South Korean President Lee Jae Myung, whose government is looking to redirect investment from property and overseas assets, has encouraged the public to invest in the domestic stock market. An opposition lawmaker has also suggested that regulators fast tracked approval of single-stock leveraged ETF products at the behest of Korea’s executive.

Education and sustainability

Retail investor participation has been particularly strong in South Korea recently, driving up equity prices. For some investors, highly leveraged products offer a way to negotiate the country’s cost of living crisis, even as they amplify losses.

While some day traders enjoy the thrill of negotiating market volatility, some ordinary Korean investors are feeling misled by a government that assured them local equities were the path to prosperity.

For brokers, the (probably temporary) retreat of retail investment in Korean equities raises a broader point. Encouraging participation in equity markets is about more than offering a flexible and diverse suite of products. It also requires clear education on risk, realistic expectations and effective safeguards that can help retail investors negotiate uncertainty stay invested through periods of volatility, rather than retreat from the market altogether.

All opinions, news, research, analysis, prices or other information is provided as general market commentary and not as investment advice and all potential results discussed are not guaranteed to be achieved. The information may have been derived from publicly available sources, company reports, personal research, or surveys. Past performance is not indicative of future performance. Trading carries risk of capital loss. Service available to professional clients only.