Reporting on local stock market news from New York, I realize more than ever the widening gap in market perception between Korean retail investors and Wall Street. Korean acquaintances recently seeking promising U.S. investment opportunities share a common trait: they tend to tune out risk factors. These days, I hear more stories of losses than gains. One acquaintance who recently jumped into U.S. stocks lamented, "I'm sitting on heavy losses after diving into Nasdaq nuclear and cryptocurrency-related stocks."
The KOSPI index, which had fallen to 2,398.94 in early January following the emergency martial law crisis at the end of last year, surged to 4,221.87 on the 3rd of this month. That represents a 76% gain during this period—the highest among all global stock markets. According to the Korea Financial Investment Association, outstanding margin loan balances—money borrowed for stock investments that remains unpaid—also swelled to a record 26.25 trillion won ($18.2 billion) on the 13th of this month. Notably, this figure actually surged during the period from the 4th to the 7th of this month, when KOSPI plunged to the 3,900 level.
Korean retail investors' optimism has also spread to U.S. markets. According to the Korea Securities Depository, Korean individuals' U.S. stock holdings grew from $112.1 billion (approximately 163.4 trillion won) at the end of last year to $162.2 billion (approximately 236.4 trillion won) as of the 12th of this month—an increase of more than 73 trillion won. From the beginning of this year through the 14th of this month, net new purchases of U.S. stocks and bonds totaled $28.3 billion (approximately 41.2 trillion won) and $9.7 billion (approximately 14.1 trillion won), respectively.
The Financial Times recently likened the Korean retail stock investment frenzy to Netflix's survival game drama "Squid Game," pointing to high real estate prices and wealth inequality as primary causes. The FT noted that "Koreans, known for high risk tolerance, reckless behavior, and use of leverage, are contributing to sharp price swings in some U.S.-listed companies."
Wall Street, meanwhile, has been viewing markets far more cautiously. AI bubble concerns are no longer mere rumors. Just as Apple dominated the smartphone market and Google monopolized search engines, Wall Street is now in the mode of selecting the few companies that will emerge as ultimate winners in the AI sector. Michael Burry, the famous investor portrayed in the film "The Big Short," recently liquidated his hedge fund while warning of market overheating. Beyond that, there are growing concerns that Chinese AI technology is catching up to the U.S., much like electric vehicles overtook Tesla.
Accumulated distress in the U.S. private credit market since the 2008 global financial crisis is another source of anxiety. Corporate bankruptcies in the U.S. have surged to their highest level in 15 years this year, causing losses at major investment banks and asset managers including JPMorgan and BlackRock, as well as various regional banks. Inflation and employment deterioration caused by tariff wars and immigration policies are difficult to gauge. Recently, a federal government shutdown has prevented the release of proper economic indicators, leaving Federal Reserve officials troubled. The probability of a rate hold in December has also risen sharply. CEOs of Goldman Sachs and Morgan Stanley have both warned that stock prices could see corrections of 10-20% over the next one to two years.
Despite such time-bomb-like risk factors throughout global markets, senior economic officials in Korea are encouraging people to buy stocks at low prices. They are even making far-fetched claims that foreign investors have sufficient buying power, even though the won-dollar exchange rate surge has raised won-denominated asset prices, making it harder for Wall Street investors to profit. Total household loans across the financial sector increased by 4.8 trillion won last month alone, driven by stock-related margin loans. Suspicions are growing that the government may be pushing citizens toward risk in pursuit of President Lee Jae-myung's campaign pledge of "KOSPI 5,000." It is time to soberly examine whether it makes sense for officials and citizens of Korea—a country with potential growth in the 1% range—to be more optimistic about economic conditions and more confident in stock price increases than Wall Street investors in the U.S., which has potential growth in the 2% range.
