K-Ants Trapped in Involuntary Long-Term Investment

The monthly volatility of the KOSPI market recently plummeted to one-tenth of its previous level, significantly reducing market dynamism. The KOSPI index, which was at 2,695 points on July 31, recorded 2,788 points on August 28, showing only a slight change over a month. This is a significantly reduced volatility compared to the high-low difference of 2,000 points in June.

As investor enthusiasm wanes, the average turnover rate of KOSPI has hit its lowest point this year. This indicator shows that investor interest is rapidly cooling. Along with this, the volatility index VKOSPI has also sharply dropped, indicating an overall market downturn.

Circuit breakers, which were frequently triggered in March, June, and July of this year, did not occur even once in August. This means that market volatility has almost disappeared. Circuit breaker activations, which occurred only a few times in the past 20 years, surged this year and then stabilized again.

KOSPI trading volume has sharply fallen from a peak of 80 trillion won to the current 20 trillion won range. Investor deposits have also dropped below 100 trillion won to under 90 trillion won, showing a contraction in investment sentiment. The simultaneous decline in these key investment indicators reflects a generally subdued market atmosphere.

With the stagnation in stock price volatility of major domestic semiconductor companies like Samsung Electronics and SK Hynix, many individual investors are in a dilemma. Shuka described this as "Korea's best fish farm," analyzing that short-term investors are trapped by stock prices and cannot escape, while long-term investors find no reason to sell. Consequently, investors are forced, willingly or unwillingly, to hold onto their stocks.

Korean individual investors account for about 70% of the daily trading volume in the Korean KOSPI market. This is a very high figure compared to the 20-30% proportion of individual investors in the U.S. stock market. Such a high level of individual participation exacerbates investor suffering during periods of market volatility stagnation.

Yoon Kyung-min, an individual investor, lost $7,200 in just one week after investing half of his retirement savings in semiconductor stocks. This case starkly illustrates the severity of investment losses currently experienced by Korean individual investors. Many investors are facing similar experiences, feeling the difficulties of the market.

The phenomenon of investors delaying stop-loss sales in a declining stock market can be explained by the 'Disposition Effect.' This refers to the tendency to hold onto stocks rather than sell them and realize a loss, driven by the fear of feeling regret if the loss becomes permanent. Investors dread turning an unrealized loss into a realized one, holding on with the hope and expectation that their principal will eventually recover.

Due to these psychological factors, many investors inadvertently become long-term investors. The desire to avoid the pain of realizing a loss hinders rational investment decisions and can ultimately lead to greater losses. Consequently, investors often ignore reality with vague hopes of recovering their principal, entering the path of 'involuntary long-term investment.'

An analysis of investor behavior by the Capital Market Institute shows that individual investors exhibit irrational investment behavior: they immediately sell when their principal is recovered but hold onto investments when a loss occurs. Shuka criticized this as "a miraculous selling method where you cut flowers when they grow big and cultivate weeds when they seem like they'll become weeds." Such misguided investment strategies result in even greater investment losses.

According to behavioral economics experiments, a Nobel Prize-winning theory, the proportion of investors who sell when stock prices rise above their purchase price is 15%, whereas only 10% sell when prices fall. This is a paradoxical result contrary to common expectations; people tend to prefer certain gains over uncertain gambles when expected values are equal. In other words, in a gain situation, they show risk aversion and seek certain gains, while in a loss situation, they exhibit risk-seeking behavior to recover losses.

Koreans tend to perceive a 50% chance of receiving $1,000 and a 100% chance of receiving $500 as equivalent. This stems from a mindset that if you bet $500, it's a game where there's a 50% chance of getting an additional $500. Shuka analyzed that Koreans tend to focus more on positive expected returns rather than the risk itself.

People have a loss aversion tendency, feeling the pain of a loss much more intensely than the pleasure of a gain. This causes investors to hold onto losing investments for too long, hoping they can recover their losses. For example, when comparing a 50% chance of losing $1,000 with a guaranteed loss of $500 in a situation where one holds $2,000, people tend to take greater risks to avoid a definite pain.

This psychology makes them fear realizing losses and cling to uncertain possibilities. Ultimately, this can lead to a vicious cycle of increasing losses. Behavioral economics explains the behavior of individual investors in the investment market through these irrational human decision-making processes.

A representative from a foreign asset management firm pointed out that Koreans, after losing money in stocks, tend to buy more stocks, exhibiting a peculiar investment pattern of losing in Korean stocks and then buying U.S. stocks. This reflects a trend of 'global asset allocation,' where investors look to overseas markets amidst the sideways movement of the domestic stock market.

In August, SpaceX was the top-ranked stock for net purchases by 'Seohak Ants' (Koreans investing in foreign stocks). Seohak Ants net purchased approximately $300 million in SpaceX, showing high interest in promising overseas companies.

NVIDIA CEO Jensen Huang predicted that the computational power required by AI agents would be 15 to 100 times greater than what humans directly need. Currently, in Silicon Valley, AI agents are moving beyond simple information processing to taking actual actions, raising expectations for future increases in computational demand.

NVIDIA's CFO stated that if all customer demands are combined, a twofold growth is possible next year. That is, demand remains explosive, but growth is being constrained by semiconductor supply limitations. Currently, bottlenecks are occurring in major supply chains, including Samsung Electronics and SK Hynix, and analysis suggests that 100% year-over-year growth would be fully achievable without supply constraints.

These supply chain constraints are not merely an issue for NVIDIA but also a factor hindering the growth of the overall semiconductor industry. Especially with the advent of the AI era leading to a surge in semiconductor demand, supply chain limitations pose an even greater challenge. Ultimately, if the semiconductor supply shortage is not resolved, it could impact the pace of development in advanced technology industries, including AI.

Controversy has arisen over a 'mismatch' between the government's record-high expansionary budget of 800 trillion won, injecting money into the economy, and the Bank of Korea's tight monetary policy, maintaining interest rate hikes. A reporter described it as the government 'pouring money with buckets' while the Bank of Korea 'blocks it with a hoe,' questioning its effectiveness. In response, the Governor of the Bank of Korea stated that if fiscal spending is an investment for future growth, it might not be a mismatch, emphasizing the structural necessity of each institution fulfilling its role.

However, concerns are also raised that such differences in policy direction could confuse the market and economic actors. The government's expansionary fiscal policy aims to boost the economy and secure growth drivers, while the Bank of Korea's tight policy prioritizes inflation control and price stability. There are arguments that when policies with conflicting objectives are pursued simultaneously, their effects might offset each other or lead to unforeseen side effects.

The U.S. Federal Reserve Chairman emphasized the need for confidence that inflation is moving towards its target at a sufficiently rapid pace, stating that if it isn't, the Fed still has work to do. This reaffirmed a strong commitment to tightening, indicating that further interest rate hikes would not be ruled out without conviction about falling prices. The Fed believes that current financial conditions are not sufficiently restrictive and asserted its firm stance on price stability, stating that the responsibility for inflation failure rests entirely with the central bank.

Such a hawkish stance by the Fed is expected to have significant implications for the global economy. U.S. interest rate hikes can affect global capital flows, putting pressure on emerging markets including Korea. Ultimately, the Fed's policy direction will be a major factor increasing uncertainty in the domestic investment market.