South Korea’s stock market still remains more vulnerable to global crises than its neighboring country, namely Japan.

But its fast recovery from the initial impact of the COVID-19 pandemic was buttressed by the powerful influence of local individual investors, dubbed ant warriors, and that was an impressive event to mark, a foreign analyst in Seoul has said.

As global stock markets rallied on rising hopes on a possible exit from the coronavirus shock, South Korea’s stock market rebounded faster than others around the world. The nation’s main bourse Kospi recovered the 2,200-point mark during Monday’s trading to reach 2,217.21, after hitting rock bottom in March 19 at 1,457.64.

Just in March, foreign investors dumped over 13 trillion won ($10.8 billion) of local shares. But retail investors bought stocks covering almost that entire amount.

“Korean stocks started falling before the US and Japan’s stocks, because Korea had the coronavirus impact first, right after China. Foreign investors panicked and they dumped shares including in Korea and Japan,” said Asim Hussain, an analyst specializing in the Japanese market at KB Securities, a brokerage unit of KB Financial, in an interview with The Korea Herald.

“While institutional investors only bought 400 billion won of stocks, retail investors bought 20-30 times more. Even now, I’m quite impressed by the really powerful impact of retail investors.”

Hussain is one of a dozen foreign analysts working at local brokerages. Most foreign analysts affiliated with local companies cover their native countries’ markets such as Hong Kong and China. Hussain, a Canadian national, however, is the only foreign analyst covering the Japanese stock market in Korea.

During the roller coaster ride of stock indexes in recent months, what became obvious to him was the similarities and differences between Japanese and Korean stock markets.

The Japanese market also has shown a similar trading pattern during the pandemic, more than 500,000 new stock accounts were opened online in the first quarter. But the fate of the Korean market, which is a quarter of the size of Japan’s, during the early stage of the pandemic was saved by retail investors, he said.

Both have suffered from market discounts by global investors, he said. But Korea appeared to be a less preferable investment destination for foreign investors, particularly during the pandemic, because of the currency impact, he pointed out.

The Korean won is not freely tradable like Japanese yen, since the local government has limited the trading amount of the local currency for foreign investors. Further, the currency effect is opposite between the won and yen against the greenback.

“A weaker yen is associated with a stronger stock market, but it works inversely for the won. When global markets panic, the Korean won gets weaker. When local stocks fall along with the won, foreign investors get hit on both sides. To avoid the further losses, they sell the local shares,” he said.

“However, when the global markets collapse, usually the yen gets stronger. So foreigners who get scared (of buying more stocks) usually buy yen, because Japanese government brings back the currency from other emerging markets such as Turkey or Brazil,” he added. “Even though stock prices fall, at least yen is strong against the dollar. So foreigners would prefer Japanese stocks when the yen is weakening.”

The Korean market is also still viewed as an emerging market with lingering corporate governance issues, he said. Chaebol families want to keep their control over companies even though their levels of ownership are falling, and this gives the impression that they are not well run.

The market is dominated by a single conglomerate -- Samsung -- which is another interesting feature of the Kospi.

Including Samsung Electronics, the world’s largest chipmaker, about 40 percent of Kospi 200 are IT related stocks. The list includes SK hynix, LG Electronics, Naver and Kakao. The dominance of IT giants makes the local market one of the most attractive Asian markets for foreigners who are interested in related stocks.

“The figure is already high and the globally known tech firm Samsung Electronics’ stocks account for nearly 30 percent. Meanwhile, the sector takes up about 15 percent on Japan’s Nikkei 225 and there’s no such firm weighing even 7 percent of the total,” he said.

The Japanese market expert, previously worked at Nomura Asset Management and GCI Asset Management in Tokyo, Japan for nearly six years, before joining KB last year.

By Jie Ye-eun (yeeun@heraldcorp.com)