Emerging Asian stock markets, including South Korea's KOSPI, have experienced significant declines amid rising U.S. long-term bond rates. Following the U.S. non-agricultural employment report for December 2024, which exceeded market expectations, the KOSPI closed at 2489.56, down 1.04%, marking its first decline of over 1% in 2025 [a04b18c2]. This downturn is part of a broader trend affecting various markets in the region, with the Hang Seng Index also falling by 1.12% and TSMC down 2.27% [a04b18c2].
The increase in U.S. bond rates has been notable, with the U.S. 10-year Treasury yield reaching 4.77%, the highest level since November 2023. This rise has prompted foreign investors to sell off KOSPI stocks, resulting in net sales of 875.5 billion won [a04b18c2]. The Hang Seng Index has seen a decline of over 5% this year, reflecting the broader impact of U.S. economic conditions on Asian markets [a04b18c2].
In addition to the immediate market reactions, investors are closely monitoring upcoming economic indicators, including the U.S. Consumer Price Index (CPI) set to be released on January 15 and Korea's base rate decision on January 16. These indicators are expected to provide further insights into the economic landscape and may influence investor sentiment moving forward [a04b18c2].
As South Korea's KOSPI index continues to struggle, retail investors are increasingly shifting their focus to U.S. stocks. In December 2024, retail investors' share in KOSPI trading volume dropped to 47%, a significant decline from a peak of 58.49% in June 2024. This shift is reflected in the decreasing margin debt balance, which fell from 20 trillion won to 15 trillion won ($10 billion) [5829bdf4].
On January 8, 2025, the KOSPI index fell to 2488.00, down 4.10 points (0.16%), influenced by a decline in U.S. stocks. The KOSPI opened at 2481.25, down 10.85 points (0.44%). Major stocks showed mixed results; Samsung Electronics rose by 0.18%, while SK Hynix fell by 0.87%. The KOSDAQ index also declined to 714.48, down 3.81 points (0.53%) [7c83c660].
The KOSPI index has struggled, falling below 2,200 points and experiencing a drop of over 9% throughout 2024. In contrast, the S&P 500 has surged over 25% during the same period, prompting Korean investors to seek better returns in the U.S. market [5829bdf4]. The annualized turnover ratio for KOSPI is now at 187.05%, the lowest since 2010, indicating a significant decline in trading activity [5829bdf4].
During the week of December 13-19, 2024, net purchases of U.S. stocks by Korean investors reached $622.96 million, marking a 21% increase from the previous week. This trend highlights a growing preference among retail investors for foreign markets, particularly as local conditions remain challenging [5829bdf4].
In the KOSDAQ, the retail investor share also decreased to 77.1%, further illustrating the shift away from domestic equities. The ongoing economic challenges in South Korea, compounded by the extended short selling ban and regulatory concerns, have made the local market less appealing to investors [61face17][5829bdf4].
Adding to the concerns, Professor Park Sun-young warns that the Korean stock market will face greater challenges if the U.S. economy falters. In 2024, the Nasdaq Composite and S&P 500 indices rose by around 30%, while KOSPI and KOSDAQ indices fell by 9.9% and 21.7%, respectively. Professor Park emphasizes that the U.S. economy is currently outperforming other countries, with a GDP growth of 2.8% and an unemployment rate of 4.1% [de905218].
She notes that the U.S. attracts global talent and corporations due to its favorable economic environment, which could further impact Korean markets if the U.S. experiences a downturn. Concerns surrounding the potential second term of the Trump administration, skepticism towards the AI industry, and national liabilities also contribute to the uncertainty [de905218].
Professor Park highlights the high proportion of individual investors in Korea (64%) compared to the U.S. (30%) and advocates for a shift towards an indirect investment culture in Korea to reduce anxiety and fatigue among investors. As the KOSPI struggles to regain investor confidence, the trend of Korean retail investors moving towards U.S. stocks may continue, reflecting broader economic sentiments and the search for more lucrative investment opportunities [5829bdf4][de905218].