Analysis shows that the unusual phenomenon of concentration in leveraged exchange-traded funds (ETFs) and sharp fluctuations in certain sector stocks in the U.S. stock market can be attributed to Korean individual investors (also known as 'Seo-hak ants').
On the 13th (local time), Owen Lamont, senior vice president of the U.S. asset management firm Arcadian, claimed in an article titled 'The Squid Game stock market' that the aggressive investment tendencies of Korean retail investors are increasing volatility in the U.S. market. He noted, 'The U.S. stock market is becoming more like Korea,' and said, 'In this process, Korean individual investors are playing a significant role.'
Lamont explained that while the holdings of Korean individual investors in U.S. stocks amounted to $112.1 billion (approximately 163 trillion won) last year, which is only 0.2% of the total market capitalization of the U.S. stock market (62 trillion dollars), they exert considerable influence in certain niche markets. He specifically mentioned the sharp rise in stocks related to quantum computing, citing the case where Korean investors concentrated their purchases of 'Rigetti Computing' worth $11.1 million (approximately 1.61 billion won) at the end of last year, leading to a 1400% surge in stock price within a month. However, the stock has since fallen 55% from its peak.
He analyzed that Korean investors have also contributed to increased volatility in the market by investing heavily in stocks related to artificial intelligence (AI), small modular reactors (SMR), virtual assets, and leveraged ETFs.
Lamont pointed out a pattern where Korean investors tend to concentrate their purchases of specific stocks just before a market downturn. He emphasized that 'just before the collapse of Lehman Brothers in 2008, the Volmageddon incident in 2018, the Nikola fraud allegations, and the fall of Silicon Valley Bank (SVB), there was a surge in related stock purchases by Korean individual investors.'
He likened this investment behavior to the Netflix series 'Squid Game,' stating, 'Just as the participants in 'Squid Game' jump into dangerous games without knowing the rules, Korean investors take on significant risks to become wealthy quickly, resulting in most facing unfavorable outcomes.'
Lamont mentioned groups of individual investors who suffered losses in previous global financial crises, asserting, 'Just as Japanese salarymen in 1989, growth fund investors in 1999, and Robinhood investors buying meme stocks in 2021 faced challenges, today, Korean individual investors are taking their place.'
He advised, 'Even if it may feel boring, for individual investors worldwide, it is better to buy index funds, and the best decision when given the opportunity to participate in Squid Game is to not participate at all.'
Meanwhile, Arcadian Asset Management, established in 1986, is a global quant hedge fund currently managing about $117 billion (approximately 169 trillion won). Lamont is a financial market expert with a Ph.D. in economics, having served as a professor at Yale University and the University of Chicago Business School and as a lecturer at Harvard University.