[Yonhap]
[Yonhap]

The massive wave of retail buying that has underpinned South Korea's stock market this year reflects a combination of rising incomes, household asset reallocation and expanded credit investment, some analysts say. Rather than a single funding source, a broad "money move" — deposits and overseas investment funds shifting into the domestic market — has driven individual net purchases.

Retail investors posted net purchases of 97.4 trillion won ($62.7 billion) in the domestic stock market from January through May, according to Korea Exchange data.

On the main board, individuals net bought 56.8 trillion won worth of shares, while net selling on Kosdaq reached 7.1 trillion won. Exchange-traded funds saw net inflows of 47.7 trillion won.

Samsung Securities, in a recent report, identified three sources behind the investment funds: increased investment driven by higher personal income, reallocation of household financial assets and debt financing.

The firm concluded that "with investment funds coming from no single dominant source, the key driver was a portfolio rebalancing effect centered on the domestic stock market, which offers relatively higher expected returns."

Analyst Kim Jae-woo estimated the contribution from income growth using Bank of Korea data. He assumed an annual income growth rate of 4.0 percent this year and a household savings rate — the share of disposable income left after consumption — of 9.0 percent, taking into account the average of 9.1 percent over the three quarters since the second half of 2025.

On that basis, he estimated total savings through May at roughly 98.9 trillion won, then assumed "40 percent of that was allocated to domestic equities." The resulting increase in individual net purchases was calculated at approximately 39.5 trillion won.

On the rationale for the 40 percent domestic equity allocation, Kim said the share of financial investment products within household financial assets hovered around 25 percent between 2020 and 2024. He added that the proportion of performance-based dividend products within defined-contribution and individual retirement pension accounts — which had been managed conservatively — had recently risen to around 50 percent at securities firms.

"This suggests that the share of new income being directed into the domestic stock market may have increased," he said, adding that "the assumption of allocating 40 percent of new savings to domestic equities does not appear excessive."

Household asset reallocation was also cited as a key factor. Samsung Securities noted that the increase in bank deposits, which had grown by 17.1 trillion won last year, slowed to 4.4 trillion won this year, while total deposits at non-bank depository institutions swung from an increase of 12.4 trillion won to a decrease of 13.5 trillion won — implying a total fund shift of 38.7 trillion won.

This suggests that some funds previously parked in safe assets such as deposits may have moved into the domestic stock market. As of last year, cash and deposits accounted for 46.3 percent of household financial assets, insurance and pension products for 28.9 percent, and financial investment products including equities for 24.0 percent.

Kim said there is considerable room to conclude that individual net purchases accelerated as households shifted money out of low-yielding safe assets — such as deposits and insurance products — and out of overseas equities, which had rapidly grown as a share of financial investment products through the first half of last year, and into domestic stocks offering relatively higher returns.

Credit investment was also identified as one pillar of retail fund inflows. Outstanding credit extended by securities firms stood at 38 trillion won at the end of May, up 10.6 trillion won from the start of the year. When household loan increases are included, an estimated 13 trillion won is thought to have been used as investment capital.

However, Kim noted that "while the level of credit extended is at a historical high in absolute terms, it has limits as a sole explanation for the surge in individual net purchases that drove the stock market rally in the first half of this year."

Combining these assumptions, the total money-move figure comes to approximately 89.2 trillion won, which some analysts say can account for 91.6 percent of actual individual net purchases. The 2.1 trillion won that flowed into domestic market return accounts through May was also flagged as a potential additional contributor to retail buying.

By contrast, Samsung Securities drew a line against the interpretation that proceeds from real estate sales had flowed en masse into the stock market. Kim acknowledged that "the possibility exists that rising property transactions led sellers to deploy proceeds into equities," but said that from a household perspective, net equity purchases between home sellers and buyers partly offset each other, and that tightened mortgage regulations had increased the burden on home buyers to liquidate other assets to fund purchases.

The outlook for individual investors' future buying capacity was also relatively upbeat. Addressing concerns that retail buying could weaken as foreign selling continues, Kim said "there is a possibility that the money move into the stock market will persist."

He pointed to first-quarter nominal GDP growth of 17.1 percent as a basis for expecting corporate earnings improvements to translate into higher household incomes. He also projected that the accelerating flow of retirement pension funds into the domestic market would generate additional rebalancing demand, providing a further positive impulse.

Market watchers broadly expect that, given how much of the recent domestic stock market rally has been powered by large-scale retail inflows, the pace at which retirement pension and long-term investment funds continue to flow in will remain one of the key variables shaping market direction.


rainbow@heraldcorp.com