Data reveals that the issues stemming from asset allocation imbalances and excessive market concentration in a few leading stocks were more severe than anticipated in the South Korean stock market during the first half of the year.

An analysis of customer account data from major South Korean securities firms found that among the top 50 stocks by individual investor purchase volume, retail investors incurred substantial losses on nearly all popular stocks, except for the market-leading "semiconductor duo" of Samsung Electronics Co Ltd and SK Hynix Inc, along with some core IT component firms.

This indicates that the gains from the stock market rally have not spread across the broader market but have instead flowed intensively to a handful of mega-cap leaders.

Among these, the most dismal performance was seen by South Korean internet company Kakao Corp (ranked 45th in individual investor purchases).

The average return for individual investors who invested in Kakao in the first half of the year was -52.7%, with the proportion of investors experiencing losses reaching 99.9%. This means nearly all investors are facing losses.

Following NVIDIA CEO Jensen Huang's visit to South Korea in June last year, previously overlooked stocks in software and IT, such as display maker LG Display Co Ltd, briefly gained market attention and rebounded. However, by the end of the first half, over 90% of investors in these stocks remained mired in losses.

Average Returns Soar, Yet Retail Investors Face Heavy Losses

More notably, even among popular stocks that drove the market higher in the first half, boasting average returns of tens or even hundreds of percentage points, the proportion of retail investors actually suffering losses expanded.

SK Square Co Ltd is a prime example.

Buoyed by market optimism over the value of its stake in SK Hynix and expectations of its inclusion in semiconductor-related ETFs, SK Square became a focal point and leading gainer.

While the stock posted a staggering average return of 227.2% for individual investors, data shows the proportion of losing investors still reached 59.8%. In other words, approximately six out of every ten investors are in the red.

In reality, SK Square's share price surged rapidly earlier this year before retreating more than 30% from its peak. Many retail investors, unable to overcome the fear of missing out and who chased the rally in its later stages, suffered significant losses during a brief correction phase.

A similar situation unfolded with Hanwha Aerospace Co Ltd, a representative company of this year's "defense industry boom" in South Korea.

The average return for individual investors in this company reached 130.1%, yet the proportion of losing investors approached 73.5%.

The reason lies in the stock's trajectory: starting the year around 940,000 won, it rose swiftly to 1.537 million won in April, attracting massive inflows. Subsequently, the price fell more than 33% from its peak, dropping back to around 1 million won by the end of last month.

A minority of investors who boldly bought in during the early stages of the rally reaped multiples of returns, pushing up the overall average return and creating an illusion of strong market profitability.

However, the subsequent wave of investors who entered in large numbers as the stock neared its peak bought at elevated levels and ultimately bore the brunt of substantial losses.

Experts believe the extreme concentration of capital witnessed in the South Korean stock market in the first half further stimulated retail investors' tendency to chase rallies.

Kim Hak-kyun, head of the research center at Shinhan Investment Corp, stated, "Capital flowing into specific stocks is a common market phenomenon, but the degree of concentration in the Korean stock market recently is at a very high level, even compared to the past."

Proportion of Losing Investors in Samsung Electronics Leveraged Fund Hits 100%

Furthermore, the investment environment on mobile trading platforms is considered to have exacerbated this phenomenon.

An analysis by SK Securities points out that when South Korean individual investors log into their accounts via mobile trading platforms, they often base their investment decisions on prominently displayed information on the homepage or main screen, such as:

"Top-performing stocks of the day"

"Stocks with surging real-time trading volume"

"Real-time search popularity rankings"

The analysis suggests this intuitive method of information presentation makes investors more prone to herd behavior, concentrating their purchases on trending stocks.

Even indirect investment products like exchange-traded funds have not escaped the predicament of "chasing rallies at highs."

In June, the product with the highest net purchases by South Korean individual investors was the KODEX SK Hynix Leveraged ETF, where the proportion of losing investors reached 99.7%.

Ranking second, with the second-highest net purchase volume by individual investors, was the KODEX Samsung Electronics Leveraged ETF, where the proportion of losing investors reached a staggering 100%.