Against the backdrop of a strong dollar globally, the fluctuations in Asian stock markets show a clear divergence. Some countries have stimulated local currency-denominated bull markets through currency depreciation, while others have sacrificed stock market gains by stabilizing their exchange rates. However, the performance of the South Korean stock market stands out as a 'special case' among Asian stock markets.
As of this year, the South Korean composite index (KSOPI) has fallen by 10.0% in won terms, and by 18.9% in dollar terms, performing the weakest among Asian stock markets. Especially in the second half of the year, the decline in the South Korean stock market has become more apparent. In the first half of the year, the KSOPI once rose by nearly 20%, but this increase was completely wiped out in the second half.
Why has the South Korean stock market continued to decline in the second half of the year?
From the perspective of capital flow, foreign investment confidence in the South Korean stock market continues to weaken, and the enthusiasm for investment among residents has also begun to fade. In the second half of this year, foreign investors continued to sell South Korean stocks. In November this year, foreign net sales of South Korean stocks reached 41.5 trillion won, marking four consecutive months of net selling. As December began, the withdrawal of foreign capital intensified, with another net sale of 24 trillion won in just two weeks.
At the same time, the investment behavior of South Korean residents has also undergone significant changes. A large amount of resident funds has flowed out of the stock market and into the cryptocurrency market. According to data from the Bank of Korea (BOK), as of November, the number of domestic cryptocurrency investors in South Korea has reached 15.59 million, an increase of 610,000 from the previous month, accounting for 30% of the total population. This increase indicates that South Korean residents' enthusiasm for cryptocurrency remains strong.
The average daily trading volume of South Korea's five major cryptocurrency exchanges—UPbit, Bithumb, Coinone, Korbit, and GOPAX—soared from 34 trillion won in October to 149 trillion won in November, more than quadrupling. Cryptocurrency has become the new investment favorite for an increasing number of South Korean residents.
From historical data, the South Korean stock market and Bitcoin prices have shown a positive correlation, especially during the two cryptocurrency bull markets in 2017 and 2021, where the trends of the stock market and Bitcoin were largely synchronized. However, since October of this year, this positive correlation has been broken. Now, the decline in the South Korean stock market seems to have a direct relationship with the rise in the cryptocurrency market, prompting discussions in the market about 'the stock market decline being blamed on Bitcoin.'
In the second half of 2023, the South Korean stock market faces dual pressures from foreign capital withdrawal and residents shifting funds to cryptocurrency, intertwining the market's sluggishness with the cryptocurrency boom, creating a unique market situation. Investors need to pay attention to whether the enthusiasm in the South Korean cryptocurrency market can be sustained and how the stock market and cryptocurrency market will interact in the future.
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