The 'Stock Game' In the U.S. Now Has Some New Players - South Koreans

South Korean retail investors are turning to U.S. stocks!

Over the past two days, the South Korean stock market has been on a downward trend. On Monday ( November 11th ), the Korea Composite Stock Price Index (KOSPI) fell by more than 1%, dropping another 1.94% on Tuesday. The chip stocks have been hit hard, with SK Hynix and Samsung Electronics both falling by more than 7% over the last two trading days. So far this year, the KOSPI has declined by over 6%, making it one of the worst-performing stock markets globally.

On Tuesday, the Korea Development Institute lowered its GDP growth forecasts for this year and next. The institute stated that the possibility of a global trade environment deterioration is likely to increase with Trump's re-election to the White House, which could pose a downside risk to Korea's trade-dependent economy.

Therefore, an increasing number of South Korean retail investors are selling their domestic stocks and buying large-cap U.S. tech stocks. According to data from the Korea Securities Depository, as of November 7th, South Korean retail traders collectively held $101.4 billion worth of U.S. stocks, a 64% increase from last year - More and more South Koreans are directly investing in U.S. stocks to seek better returns, as the decline in the KOSPI has made it one of the worst-performing indices globally this year.

On the other hand, despite efforts by South Korean authorities to revitalize the local stock market by strengthening corporate regulations, retail investors have net sold KOSPI benchmark stocks worth 4.4 trillion won so far this year.

Tesla is the most favored stock among South Korean investors, with retail investors holding $16.7 billion worth of Tesla shares as of last week, according to custody data. They also hold $13.8 billion in Nvidia shares, $4.6 billion in Apple shares, and $3.6 billion in Microsoft shares. In the secondary market, Tesla's stock price has risen by more than 40% this year, with a market value of over $1 trillion; Nvidia's stock has surged by more than 190%, with a market value of $3.56 trillion. The increases in Apple and Microsoft are relatively smaller, at 17% and 11%, respectively.

South Korean investors also have a high demand for leveraged exchange-traded funds (ETFs) that track U.S. tech stocks. Among the six largest assets they hold, one is a 3x leveraged NASDAQ 100 ETF, and another fund is a 3x leveraged semiconductor chip ETF.

Warnings From Wall Street

Last Friday, all three major U.S. stock indexes hit new historical highs, with the S&P 500 index breaking through 6000 points for the first time during the trading day, and the Dow Jones Industrial Average breaking through 44000 points for the first time. As of the close of trading on that day, the Dow Jones Industrial Average rose by 0.59% to 43988.99 points, with a cumulative increase of 4.61% for the week; the S&P 500 index rose by 0.38% to 5995.54 points, with a cumulative increase of 4.66% for the week, marking the largest weekly increase this year; the Nasdaq Composite Index rose by 0.09%, with a cumulative increase of 5.74% for the week.

On Monday this week, all three major U.S. stock indexes climbed to their highest closing points, with the Dow Jones Industrial Average rising by 0.69% to 44293.13 points; the S&P 500 index rising by 0.10% to 6001.35 points; and the Nasdaq Composite Index rising by 0.06%, to 19298.76 points. Since Trump's victory last Tuesday, the S&P 500 index has risen by nearly 4%, while the Nasdaq Composite Index has risen by nearly 5%. Tesla rose by nearly 9% again on Monday, with a total market value of $1.12 trillion, ranking seventh in the U.S. stock market.

So far this year, the Dow Jones Industrial Average, Nasdaq Composite Index, and S&P 500 index have risen by 17.52%, 28.56%, and 25.82%, respectively.

Recently, Pimco, one of the world's largest bond fund management companies, issued a warning that Trump's economic plan could lead to an overheating economy and may force the Federal Reserve to stop cutting interest rates, thereby posing a danger to the stocks that soared after Trump's victory.

Dan Ivascyn, Pimco's Chief Investment Officer, said that the rally in U.S. stocks following Trump's sweeping victory may reverse. The S&P 500 index and the NASDAQ Composite index both hit new historical highs last week, as the market expected Trump to cut taxes, relax regulations, and impose trade tariffs in his second term. However, he warned that these re-inflation policies could trigger inflation in the already strong U.S. economy.

Although Dan Ivascyn does not expect massive inflation, he said that Trump's policies can support long-term growth and warned, We may certainly return to a point where the Federal Reserve becomes a little worried, and the market begins to eliminate some of the rate cut pricing, so we believe this means to be careful with the valuation of risk assets.

It is worth noting that recently, several Wall Street banks have downgraded their expectations for the Federal Reserve's interest rate cuts in 2025. Both Barclays and TD Bank have mentioned that the Trump administration may implement stricter immigration restrictions and raise import tariffs. They stated these policies could stimulate inflation and alter the Federal Reserve's interest rate path.

The team led by Marc Giannoni, Chief U.S. Economist at Barclays, has raised their inflation expectations for next year while lowering their GDP expectations. They predict the Federal Reserve will cut interest rates twice in 2025, down from a previous estimate of three times.

TD Bank expects the Federal Reserve to maintain interest rates stable from January to July, giving officials time to assess the impact of Trump's new policies, and then resume rate cuts as the economy slows down.

Goldman Sachs economists adjusted their forecasts following Jerome Powell's comments after the rate cut on Thursday. The team led by Jan Hatzius said that the Federal Reserve may wish to be more cautious in its actions. Goldman Sachs' new forecast is for the Federal Reserve to cut rates by 25 basis points at each meeting before March, with the final actions occurring in June and September.