WSB Goes Global as Retail Investors Dominate South Korea’s Stock Market
South Koreans don’t like financial speculation. This ranges from the stock market to the crypto space. As an ethnically homogenous nation, this leads to cohesion that opened the road to a short-selling ban, while also taking a harsh approach to cryptocurrencies.
How the GME Saga Raised Global Financial Awareness
According to a small sample size of under 500 respondents, in 2020, WallStreetBets’ demographic was as you would expect – largely an Anglo-domain consisting of the US, UK, Canada, and Australia.
However, WSB has grown by 5 times since the GameStop drama fully heated and boiled over to the world’s financial stage. Currently, the massive subreddit numbers 10 million members. As you may recall, India, the world’s second largest country by population size, also onboarded the GME short squeeze train.
Specifically, the gaming retail chain became one of the top five traded stocks on the Indian Stockal brokerage for retail investors, consisting of 15% of all trades conducted at the beginning of the year. Now, we have further demonstration of GME’s short squeeze reach as a force that pivots institutional short sellers against retail traders.
South Korean Day Traders Overtaking the Stock Market
South Korea is not exactly known for its openness—in the context of financial regulations—or financial flexibility. First and foremost, its many regulatory layers of friction render its crypto market to generate a unique phenomenon: the Kimchi Premium. Bitcoin can often be found at a 20-30% higher price than the world’s crypto exchanges. Moreover, both the income and capital gains taxes are higher in South Korea, with the latter applying to crypto assets and stocks at 22%.
Combined with the regulatory burdens and the influence of corporate conglomerates like Hyundai and Samsung, most startups in South Korea go belly up if they even manage to get a head start. Within such a cultural environment, retail traders have managed to account for nearly 60% of its $2 trillion stock market. This is not that surprising given the outstanding performance of the Korean Composite Stock Price Index (KOSPI), the South Korean equivalent to the American S&P 500 (SPX).
Moreover, nearly 1 out of 5 Korean households have some experience in the stock market, which is still twice as low as their American counterparts. Nonetheless, the pandemic narrative has served as the great accelerator to onboard high finance, especially after Korean financial authorities banned short selling in March of 2020.
KStreetBets Mean Serious Business
Due to osmosis from American global culture, Korean retail traders even dubbed their day trading venture after WallStreetBets – utilizing the name Kstreetbets. Although much smaller in scope at 44,609 members, they are more organized than their American counterparts. Jung Eui-Jung, the head of Korean Stockholders’ Alliance (KSA) and former banking employee, is not shy about framing the group in terms of class consciousness:
“We can change things if we get united. The government will pay attention if our voices get bigger,”
After all, the 44k KSA members liken themselves to “ants”, derived from “the Donghak Ant Movement” in 1894. Like many failed peasant revolts against corrupt aristocracy throughout the world’s history, it had been integrated into Korean lore as resistance against the powers that be.
As far as how KSA retail traders will leverage their stock market numbers, they have already exerted their influence to twice extend the ban on short selling. However, instead of continuing these extensions, they would rather prefer a more permanent reform. One of which is to force institutional investors to have a much higher collateral in order to borrow shares for short-selling.
One only has to revisit the disastrous margin trading by South Korean “Bill” Hwang of Archegos Capital to understand why such a policy should be implemented sooner rather than later.
South Korean Crypto Outlook Doesn’t Look Good
Speaking of failed peasant revolts and corrupt centralized power, the decentralized space in South Korea may still be in peril. Given South Korean hierarchical culture that transformed from aristocracy into corporate houses, this too is not that surprising. Whether he meant it seriously or as a warning, Eun Sung-soo, the top Korean financial regulatory official, stated last week that all of the 200 Korean crypto exchanges could be banned by September.
“There are an estimated 200 cryptocurrency exchanges in the country,” … “But if the current situation continues then all of them could be shut down.”
The issue arose when only four out of 200 exchanges endeavored to apply for the VASP license – Virtual Asset Service Provider. Within the framework of anti-money laundering (AML) and the Financial Transactions Reporting Act (FTRA), VASP registration binds crypto exchanges to commercial banks as a requirement. Naturally, as only the biggest exchanges are capable of forming such partnerships, this will likely lead to the culling of all the rest, with the “Big 4” remaining under tight control by regulatory bodies.
Sung-soo, the head of the Korean SEC equivalent, makes no qualms about the government’s stance on crypto assets:
“The worry is that officializing the cryptocurrency industry and bringing it in under regulatory approval will only encourage speculation.”
In a nutshell, the Korean powers that be view crypto trading as akin to gambling. This completely aligns with the government’s previous moves – the banning of microtransactions and loot boxes. Let us also not forget about the Korean Cinderella Law, which imposed a ban on teenagers for online gaming between the hours of 12:00am and 06:00am.
Given such a low threshold for governmental encroachment, South Korea is paving its own path toward a digital economy. Still, it must be noticed that Korean retail traders, formalized within the KSA organization, have already exerted an enormous level of influence on their financial ecosystem.
Do you think WSB should constitute a formal lobby group to exert more influence like their South Korean day-trading colleagues? Let us know in the comments below.