🚨 Market Outlook, Divergent Betting Between Individual and Institutional Investors

Today Korean Economic News | 2025.01.14

📌 Market Will Rise Further vs. Market Will Fall... Divergent Betting Between Individual and Institutional Investors

💬 As the domestic market shows a rebound at the beginning of the year, individual investors are betting on stock price declines, while institutional investors are actively investing in expectation of further increases. In particular, institutions are mainly purchasing 'KODEX KOSDAQ150 Leverage' and 'KODEX Leverage'.

1️⃣ Easy to Understand

An interesting situation is unfolding in the stock market where individual and institutional investors are betting in opposite directions. Simply put, individuals are expecting that "stock prices will fall in the future," while institutions are forecasting that "they will rise further."

Let me explain this situation with an everyday example. In a neighborhood real estate market, ordinary residents (individual investors) think, "House prices will fall soon, so we should sell now," whereas large real estate developers and investment companies (institutional investors) judge, "Prices will rise further, so let's buy now."

What's particularly notable is that institutional investors are not just buying stocks, but are investing in 'leverage' products that generate larger returns when prices rise. This is similar to real estate developers not buying ordinary houses, but actively investing in commercial land where they can gain larger profits when prices increase.

Between these contrasting investment strategies, only time will tell whose judgment is correct.

2️⃣ Economic Terms

📕 Leveraged ETF

Leveraged ETFs are exchange-traded funds that track a multiple of the daily returns of an underlying index.

• For example, a 2x leveraged ETF rises about 2% when the underlying index rises 1%, and falls about 2% when the index falls 1%.
• They are used when betting on short-term market directions, and may lead to differences from expected returns due to compounding effects when used for long-term investments.

📕 Short Selling

Short selling is an investment strategy where you borrow shares you don't own, sell them expecting the price to fall, and then buy them back at a lower price to return them.

• It's a method to profit when stock prices are expected to fall.
• It's considered a high-risk investment method as theoretical losses can be unlimited.

📕 Institutional Investors

Institutional investors refer to professional investment organizations that manage large funds, such as pension funds, insurance companies, asset management firms, and banks.

• They are considered to have advantages over individual investors in terms of information access, analytical capability, and capital resources.
• They tend to invest from a long-term perspective and have significant influence on the market.

📕 Market Sentiment

Market sentiment refers to the phenomenon where the collective attitudes or emotions of investors are reflected in market prices and movements.

• Optimism and pessimism alternate, affecting market volatility.
• Divergent sentiments between individual and institutional investors are often observed at important market turning points.

3️⃣ Principles and Economic Outlook

💡 Analysis of Individual and Institutional Investment Patterns

• The phenomenon of individual investors betting on stock price declines stems from several factors. First, there is skepticism about technical rebounds after rapid price increases in a short period. Second, there are concerns about global economic uncertainties and geopolitical risks. Third, there may be a learning effect from past failures to sell near market peaks. In contrast, institutional investors' active buying behavior shows a different perspective. Institutions are placing weight on mid-to-long-term upside potential, considering global economic recovery trends, expectations for improved corporate performance, and valuation attractiveness. In particular, their buying of leveraged ETFs suggests an expectation of strong short-term upward momentum. This divergent movement between individuals and institutions is a phenomenon often observed at important market inflection points and reflects diverse information interpretation and strategic positioning by market participants.

💡 The Meaning and Implications of Leveraged Investment

• The fact that institutional investors are investing in products like 'KODEX KOSDAQ150 Leverage' and 'KODEX Leverage' is a noteworthy phenomenon. Since leverage products seek returns that are multiples of the underlying index, it means that institutions are expecting strong upward movement in the short term. This can be seen as building an aggressive position beyond simple trend following. However, leveraged investments are like a double-edged sword; if the market moves in a direction contrary to expectations, losses are also amplified. Additionally, leveraged ETFs are designed to track daily returns, so they may not deliver expected performance in volatile, sideways markets. Therefore, institutional leveraged investment reflects strong conviction about short-term direction while also suggesting that market volatility may increase. Investors should consider these institutional movements while fully understanding the characteristics and risks of leveraged investments.

💡 Market Outlook and Investment Strategy Suggestions

• It's not easy to predict market direction amid the divergent betting between individuals and institutions. Experts forecast that volatility is likely to increase in the short term, but in the mid-to-long term, the market will determine its direction according to corporate performance and global economic trends. This year, in particular, is expected to be a year where multiple variables such as US interest rate policy, global supply chain reorganization, and technological innovation will have complex interactions. In this environment, strategies that can be suggested to individual investors are as follows. First, it's important to focus on the fundamentals of individual companies rather than short-term market timing. Second, portfolio diversification should be used to avoid excessive exposure to specific sectors or stocks. Third, high-risk strategies such as leverage or short selling should be used limitedly as part of the overall portfolio. Fourth, it's important to establish one's own investment principles and criteria and maintain a consistent approach rather than being swept up in market euphoria or fear sentiment.

4️⃣ In Conclusion

The divergent betting between individual and institutional investors shows the coexistence of uncertainty and diverse interpretations in the current market. This is a phenomenon often observed at important market inflection points, suggesting the need for a cautious approach by investors.

While individual investors betting on stock price declines reflects concerns about potential corrections after rapid rises, institutional leveraged investments show strong confidence in medium-term upward movement. In the midst of these contrasting movements by the two groups, only time will tell whose outlook is more accurate.

Investors should choose strategies that match their investment tendencies and goals in this situation. Short-term investors should closely observe market technical signals and momentum, while long-term investors should focus more on corporate fundamentals and macroeconomic environments.

Particularly when using high-risk strategies such as leverage or short selling, it's necessary to fully understand their characteristics and risks and use them cautiously within a limited range. Rather than blindly following institutional investors who invest in leveraged products, it's important to understand why they chose such strategies and make judgments according to one's own situation.

Ultimately, while short-term market volatility is difficult to predict, it's essential to remember the principle that economic fundamentals drive stock prices in the long run. Even amid divergent betting between individuals and institutions, maintaining diversified investments and one's own investment principles will be the key to successful investing.

The stock market is a complex ecosystem where various outlooks and strategies collide. In such an environment, a successful investor is one who makes independent judgments based on sufficient information and maintains their investment principles rather than blindly following others' actions.