South Korean retail investors' deposits shrank by 51 trillion won from their peak, weakening support for KOSPI buying

South Korean retail investors' cash pool is shrinking at an alarming pace, and market liquidity faces a severe test.

According to data from the Korea Financial Investment Association, as of October 22, the balance of investor deposits at South Korean brokerage firms fell to 88.68 trillion won (about $35.5 billion), a sharp drop of about 51 trillion won, or 36.5%, from the all-time peak of 139.69 trillion won set on June 4, returning to the level seen at the start of the year. The figure fell below the 90 trillion won mark on October 21, the first time in nearly nine months, and hit its lowest level since January 13. Meanwhile, the KOSPI index suffered seven consecutive declines this month and plunged 7.57% in a single day on October 15, while pressure from sustained net foreign selling has yet to fade.

The rapid withdrawal of retail funds is shaking the core force that had previously supported the South Korean stock market. In the first half of the year, it was retail investors entering the market on a large scale who offset foreign selling pressure with massive net buying; now, with the "ammunition depot" running low, the market's buying support has clearly weakened, and the KOSPI faces downward pressure going forward. Industry insiders are divided on whether the market can achieve a sustained rebound, with the debate centered on the tug-of-war between credit risks in the artificial intelligence industry and the fundamentals of chip stocks.

Deposits Plunge: 51 Trillion Won Evaporated in Four Months

Investor deposits refer to funds that investors have deposited into brokerage accounts but have not yet used to buy stocks or other assets, and are usually seen as the "ammunition reserve" of potential stock market buying. A decline in this indicator may stem either from investors actively buying stocks or from funds being withdrawn directly from accounts, so the entire decline cannot simply be equated with capital flight.

However, given the market backdrop, the signal value of this round of deposit decline cannot be ignored. In the first half of the year, as the KOSPI continued to rise, investor deposits climbed steadily, with new inflows clearly exceeding actual stock purchase spending, forming a clear trend of capital accumulation. But after hitting a record high on June 4, deposits began a sustained decline, indicating that new retail money flowing into the stock market had fallen sharply and could no longer keep pace with the scale of buying.

The pace of decline accelerated markedly in October. The deposit balance shrank from 100.44 trillion won on October 12 to 96.91 trillion won on October 15 in just three days, and then fell further into the 88 trillion won range the following week. Meanwhile, the margin balance, which measures the scale of leveraged investment, also fell to about 32 trillion won in mid-October. With both cash reserves and leveraged funds contracting, investor sentiment has cooled across the board amid sharp market volatility.

Retail Investors Are Still Buying, but "New Money" Has Dried Up

It is worth noting that the decline in deposits does not mean retail investors have fully retreated. Data show that from June 4 to October 23, individual investors net bought 44.17 trillion won of stocks in the KOSPI market and 3.15 trillion won in KOSDAQ, while net ETF purchases during the same period reached 28.25 trillion won. On a technical level, retail investors remain net buyers in the market.

The crux of the problem is that continued buying has consumed existing funds, while the pace of new money inflows is far too slow to keep up with the pace of consumption. In the first half of the year, new inflows exceeded stock purchase spending, so deposit balances continued to accumulate; in the second half, this positive cycle has reversed—retail investors are still taking over, but the pace of replenishing "ammunition" has slowed sharply, and deposit balances have continued to decline accordingly.

This structural change means that even if retail investors maintain a net buying stance in the short term, their actual capacity to absorb foreign selling has been greatly reduced. The role of retail investors as "bag holders" in the first half of the year is difficult to sustain against the backdrop of a continuously shrinking cash pool.

The KOSPI's recent performance has further amplified the risk of liquidity contraction. The index fell for seven consecutive trading days starting October 6 and plunged 7.57% in a single day on October 15, closing at 5,550.30 points on October 23, with a cumulative decline of nearly 20% over the past month. During this period, foreign investors continued to sell net, and the market's supply-demand structure deteriorated markedly.

The shrinking retail cash pool, combined with foreign selling, has created a double squeeze on the KOSPI. In the first half of the year, retail investors absorbed foreign sell orders on a large scale thanks to ample deposit balances, stabilizing the market to some extent; now that deposit balances have fallen back to low levels at the start of the year, retail investors' buffering capacity has declined significantly. If foreign selling pressure persists, the market lacks sufficient buying to offset it, and downside risks will accumulate further.

The simultaneous decline in margin balances also deserves attention. Contraction of leveraged funds usually comes with intensified market volatility, and once forced liquidations are triggered, a negative spiral may form and push the index down further.

Rebound Prospects: A Tug-of-War Between Fundamentals and Risk Sentiment

There is clear division within the market over the KOSPI's future direction.

Optimists believe that the profitability of core companies, represented by chipmakers, remains solid, and that the current index is clearly undervalued relative to fundamentals, leaving room for recovery.

However, the cautious camp is equally forceful. An official at a securities firm said:

"The KOSPI's recent decline is indeed excessive relative to earnings fundamentals, but the catalyst that previously drove the market higher—the artificial intelligence industry—now faces considerable credit risk concerns, so it is too early to expect a sustained rebound."

The emergence of credit risks in the AI industry has shaken the core logic that previously supported the market's valuation expansion. Before this uncertainty dissipates, a large-scale return of retail funds will be difficult to achieve, and the continued shrinking of the "ammunition depot" will also leave the KOSPI without sufficient private capital support when under pressure. Risk Disclosure and Disclaimer

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