Retail Investors Drive Korean Stock Market with Record Daily Buying

Retail investors have emerged as the key force sustaining Korea's stock market. Despite massive selling by foreign investors, explosive inflows from individual traders are driving the upward trend in stock indices.

According to Korea Exchange data released Sunday, retail investors' average daily net purchases on the KOSPI market reached 819.1 billion won ($566 million) in February. The figure, which includes exchange-traded funds (ETFs), exchange-traded notes (ETNs), and equity-linked warrants (ELWs), rose from 700.1 billion won in January.

Retail buying momentum began accelerating in the second half of last year. Individual investors' daily net purchases surged from just 6.2 billion won in October to 712.2 billion won in November. After profit-taking in December, strong buying resumed this year. Analysts attribute the shift to FOMO (fear of missing out) psychology amid the market rally, suggesting a structural movement of household funds into capital markets.

When the KOSPI breached the 6,300 level on February 26, retail and institutional investors absorbed foreign selling to drive gains. The following day, even as foreigners recorded a historic 7 trillion won in net sales, retail investors countered with 7.604 trillion won in net purchases, limiting the index's decline. The KOSPI reached an intraday record high of 6,347.41.

Securities analysts say today's retail investors differ qualitatively from the "Donghak Ants" who drove the market rebound during the COVID-19 pandemic crash in 2020. Individual traders have evolved into "Smart Ants" who analyze global trends and use ETFs for diversified investing, moving beyond short-term bets on individual stocks.

"Household funds flowing into individual stocks and ETFs have created additional liquidity, enabling this bull market," said Shin Eol, researcher at Sangsangin Securities. Yoo Myung-gan at Mirae Asset Securities noted that "the movement of retail funds is a structural trend" and predicted that if separate taxation on dividend income is implemented, incentives for high-net-worth individuals to invest in stocks will expand further.

As the retail-driven liquidity rally continues, domestic and foreign brokerages are raising their KOSPI targets. Korea Investment & Securities lifted its upper target from 5,650 to 7,250. Heungkuk Securities set its target at 7,900, while Kiwoom Securities projected 7,300. Japan's Nomura Securities forecast the KOSPI could reach 8,000 in the first half.

While short-term concerns exist after the sharp rally since year-start, analysts see limited risk of a sustained downturn. "Without negative catalysts such as a U.S. bank stock collapse or deteriorating AI sector earnings, the probability of entering a bear market is low," said Han Ji-young at Kiwoom Securities. "Given improving corporate earnings momentum and low valuations, maintaining an overweight position in equities remains appropriate."