The Bank of Korea announced on Tuesday that South Koreans’ overseas stock investment rose 9,550 million dollars in January, reaching the highest monthly increase. The amount of overseas stock investment has been increasing for 17 consecutive months, half of which is from individual investors. The Bank of Korea warned against excessive overseas stock investment by individuals as the volatility of overseas stock markets increased due to U.S. interest rates and a rise in global oil prices.
There is no reason to view overseas stock investment by individuals in a negative light. It is only natural to seek higher rates of return in times of low-interest rates. As the U.S. stock market soared last year, institutional and individual investors of South Korea earned approximately 62 trillion won from overseas stock investment. However, variables surrounding global stock markets, such as interest rates, oil prices, and exchange rates, have created a sort of minefield. It has become too risky for individual investors with limited information and resources to invest.
As the U.S. 10-year Treasury yield soared to 1.59 percent on Monday (local time), technology and other stocks plummeted. The price of Brent crude exceeded 70 dollars per barrel on the same day for the first time in 22 months at the London International Financial Futures and Options Exchange. The won-dollar exchange rate reaches over 1,140 won per dollar after many ups and downs. As the U.S. tries to boost its economy, concerns over inflation are growing. As oil prices – an index for price fluctuations – rise, the stock market has become extremely tricky.
However, individual investors are rather careless about their investments. While South Korean household debt reached a record high of 1,726 trillion won last year, individual investors’ overseas stock investment increased nine times, which may indicate that a lot of people have invested in stock markets with borrowed money. What’s especially concerning is that this year’s investment is heavily focused on the shares that experienced sudden rises, such as Tesla and GameStop. It is also worth noting that the U.S. stock market is highly speculative as seen in the case of Tesla’s stock prices fluctuated dozens of times as a result of a few comments made by the company’s founder Elon Musk.
Another threatening factor to overseas stock investment is inflation, which makes interest rate increase inevitable and may cause sudden drops in stock prices. What’s problematic is that the economic outlook is very uncertain to the point that the U.S. political circle and financial authorities do not share the same opinions. Individual investors should be aware that the risk of overseas stock investment is larger than ever and refrain from mindless investment.