Once frenzied buying, now the "ammunition warehouse" shrinks by 51 trillion KRW! Korean retail investors can no longer afford to buy

The liquidity pool for retail investors in the Korean stock market is shrinking at an alarming rate, putting market liquidity under severe pressure.

According to data from the Korea Financial Investment Association, as of October 22, the investor deposit balance at Korean brokerages had fallen to 88.68 trillion won (approximately $35.5 billion), a sharp decrease of roughly 51 trillion won (36.5%) from the record high of 139.69 trillion won on June 4, returning to early-year levels. On October 21, this figure fell below the 90 trillion won threshold for the first time in nearly nine months, reaching its lowest point since January 13. Meanwhile, the KOSPI index has experienced seven consecutive declines this month and plunged 7.57% in a single session on October 15, with continued pressure from foreign capital outflows still looming.

The rapid withdrawal of retail capital is shaking the core force that previously supported the Korean stock market. In the first half of the year, it was the massive influx of retail investors with hefty net purchases that offset foreign sell-offs. Now, as the “ammunition depot” runs low, buying support has clearly weakened, placing further downward pressure on KOSPI. There are mixed views among market participants about the prospects of a sustained rebound, with debates centering on credit risks in the artificial intelligence sector and the fundamentals of the semiconductor stocks.

Deposits Plunge: 51 Trillion Won Evaporated in Four Months

Investor deposits are funds that investors hold in brokerage accounts but have not yet used to purchase stocks or other assets. These deposits are usually viewed as the "ammunition reserve" of potential buying power in the market. A decline in this indicator may result either from investors actively buying shares or simply withdrawing cash—the drop shouldn't be wholly equated with capital flight.

However, given the market backdrop, the signals from this round of deposit declines do not warrant complacency. In the first half of the year, as KOSPI rose steadily, investor deposits increased, with fresh inflows significantly outpacing stock purchases and sustaining a clear accumulation trend. After hitting the all-time high on June 4, deposits began to fall steadily, indicating that new retail capital inflows into the stock market had substantially decreased and could no longer keep up with the pace of buying.

The rate of decline accelerated significantly in October. The balance shrank from 100.44 trillion won on October 12 to 96.91 trillion won just three days later on October 15, and dropped further into the 88 trillion range within the following week. At the same time, margin balances—measuring leveraged investments—fell to around 32 trillion won in mid-October. The simultaneous contraction in cash and margin balances highlights a broad cooling of investor sentiment amidst intense market volatility.

Retail Investors Still Buying, but 'New Money' Inflow Dries Up

Notably, the decline in deposits does not mean retail investors have completely exited. Data shows that from June 4 to October 23, individual investors made net purchases of 44.17 trillion won in KOSPI stocks and 3.15 trillion won in KOSDAQ, with ETF net purchases reaching as high as 28.25 trillion won, proving that retail investors remain net buyers in technical terms.

The crux of the problem is that continuous buying has depleted existing funds, while the speed of new inflows is far from matching the consumption rate. In the first half, new inflow exceeded actual stock purchases, resulting in continuous deposit accumulation; by the second half, this virtuous cycle has reversed—retail investors remain buyers, but the "ammunition" is resupplied much more slowly and the deposit balance is in ongoing decline.

This structural shift means that even if retail investors maintain a net-buying stance in the short term, their actual ability to absorb foreign selling pressure has drastically diminished. The role of retail investors as the "buyers of last resort" in the first half of the year is no longer sustainable as the liquidity pool keeps shrinking.

The KOSPI’s recent performance has further magnified the risk of liquidity contraction. The index has fallen for seven consecutive trading days since October 6 and plunged 7.57% in a single session on October 15, closing at 5,550.30 points on October 23—a cumulative drop of nearly 20% over the past month. During this period, persistent foreign net selling has clearly worsened the market's supply-demand balance.

The shrinkage of the retail capital pool combined with foreign selling pressure is delivering a double blow to KOSPI. In the first half of the year, ample retail deposits allowed for large-scale absorption of foreign sales, providing market stability to some extent. But with deposits now back to early-year lows, the cushioning capacity of retail investors has clearly declined. If foreign selling continues and the market lacks enough buying to offset it, downward risks will further accumulate.

The simultaneous decline in margin balance is also worth noting. The contraction in leveraged funds usually accompanies rising market volatility; should forced liquidations be triggered, this could result in a negative spiral further depressing the index.

Prospects for a Rebound: Tug-of-war Between Fundamentals and Risk Sentiment

There are clear internal divisions in the market on the outlook for KOSPI going forward.

Optimists argue that core enterprises represented by chipmakers maintain solid earnings power and that the current index is significantly undervalued relative to fundamentals, suggesting scope for a rebound.

However, cautionary voices are equally present. An official from a securities company commented:

"The recent drop in KOSPI has indeed been excessive relative to earnings fundamentals, but the previous catalyst for the market rally—namely the artificial intelligence industry—now faces significant credit risk concerns. It is still too early to expect a sustained rebound."

The emergence of credit risk in the AI sector has shaken the core logic previously supporting valuation expansion. Until this uncertainty fades, a large-scale return of retail funds will be difficult to achieve, and the continued depletion of the "ammunition depot" will leave KOSPI without sufficient private capital support during periods of pressure.