An estimated 10 million retail investors, a weak dollar and hope for recovery pushed the benchmark Kospi above the 3,000-point threshold on Wednesday in what could be a new era for the local stock market.

Analysts say many factors have driven the rally, including the weak dollar and anticipation for improved corporate earnings, but the biggest force may be legions of small investors, known locally as “ants.”

The “ant warriors,” who purchased 60 trillion won ($52.22 billion) worth of stocks in 2020 with cash or loans, have continued their buying spree into 2021. Retail investors snapped up a net 3.7 trillion won worth of stocks in the Kospi market in the first three trading sessions of the new year, while overseas and institutional investors dumped their shares. 

The proportion of transactions made by retail investors accounted for 65.8 percent of the total in 2020, compared with 47.5 percent recorded in the previous year, Korea Exchange data shows. Their participation also pushed daily total transactions to an average of 12.2 trillion won in 2020 last year, up 144.5 percent from a year earlier.

Experts say abundant liquidity driven by a record-low policy rate of 0.5 percent has allowed retail investors to become a major force in the market.

“In the market where retail investors were passive, their position often moved opposite of the stock index, but this trend has abated,” Kim Min-ki, a researcher at the Korea Capital Market Institute, said. “Their market influence has increased as they now play the role of an institutional and foreign investor, which is supplying liquidity and finding prices to markets,” Kim added.

As retail investors are willing to borrow the money to ride the rally, margin balance in the local stock markets surpassed 19 trillion won for the first time on Dec. 14.

In terms of their stock portfolio, the “ant warriors” amassed shares in bio, battery, internet and games. The stocks most preferred by retail investors in 2020 were shares in Samsung Electronics -- both regular and preference shares -- Hyundai Motor, Naver and Kakao.

Warning signs

As of Tuesday, the Kospi had soared 105 percent from its lowest point of 1,457.65 points on March 19. But some experts warn investors to be wary of indicators such as the price earnings ratio and the Buffett indicator.

“The price earnings ratio, which is at 14.5 times, is lower than the US stocks but it’s a historic high when compared with the local stock market’s long-term average of 10 times, meaning that it’s definitely not undervalued,” said Kim Hak-gyun, head of the research center at Shinyoung Securities.

Jeong Yong-taek, head of IBK Securities’ research center, said the Buffett indicator, the ratio of total market cap to GDP, could indicate a heated market. The indicator popularized by investor Warren Buffett stood at 123.4 percent at the end of 2020. A ratio of over 100 percent indicates that the stocks are overvalued.

By Park Ga-young (gypark@heraldcorp.com)