South Korea is one of the most dynamic retail investment markets in the world; 22% of retail investors in South Korea are active traders, with 225,000 people or 5% trading daily, and the country boasts a large retail derivatives market. Financial deregulation promises to give retail traders even more investment choices, according to a new report, The South Korean Retail Investment Market from Celent, a Boston-based financial research and consulting firm.
Key findings of the report include:
In South Korea, there are a total of 4.5 million retail investors. This accounts for roughly 11% of the adult population: 33% of them are infrequent traders, meaning they trade less than once a month; 22% of the total is made up of active traders, or traders that conduct more than 10 trades per month. Over the last decade, the household net savings rate in South Korea has decreased from 16.4% to 3.5%, indicating a move away from savings and towards investment by many households. Retail investors are an important part of the Korean stock market, accounting for half of the trading value.
In terms of age, approximately two-thirds of investors are over 45. This indicates that the majority of investors are experienced. Investors over 55 account for the largest segment (34%), and investors under 35 years account for the smallest (14%). Although younger investors are smaller in number, they do show the largest growth potential. Of the investors that started trading in 2006, 34% were under 35 years old. The other large growth segment consists of women: they accounted for 19% of investors who started trading in 2006.
Equity index derivatives are the most popular product among retail investors, followed by cash equities. However, investors seek to be more educated in derivatives because of the large risks involved. Despite the large interest in derivatives, the range of products is still limited due to regulation and the conservative nature of South Korean brokerage houses. When the Capital Markets Consolidation Act comes into effect in 2009, more derivative products should be introduced in the market, potentially increasing trading-particularly for active traders.
90% of the domestic brokerages offer online trading, which consists of over 50% of all trading volume in South Korea. An estimated 56% of index futures and 53% of index options were traded online in 2006. Among retail investors, 75% trade online. There are somewhat more male investors (78% of all male investors) than female investors (68% of female investors) who trade online. By age, individuals in their 30s are the heaviest users of online trading. However, use is heavy across the board. A significant amount of online trading now takes place through mobile phones.