Falling asset prices worsen of young Koreans’ woes
Young investors recall buying frenzy during pandemic
Many young Koreans are struggling these days to overcome stress and anxiety triggered by the abrupt end of the bullish asset market.
Those in their 30s comprise the bulk of investors here who took out loans to engage in a buying frenzy of stocks and real estate during the height of the COVID-19 pandemic between 2020 and 2021, emboldened by ultra-low lending rates. Few of them would have expected the market to enter the current period of acute adjustment prompted by the U.S. Federal Reserve’s unprecedentedly hawkish monetary policy.
The decline in asset values was just the beginning. They now face a mounting financial burden caused by increased interest rates.
Loan interest rates are widely expected to keep rising until the first half of 2023, which is spreading fears among many young Koreans who borrowed heavily to invest in risky assets on the belief that the markets will extend robust rallies throughout 2022.
“I took out a non-collateralized loan of 100 million won ($73,500) in 2021, and invested all of it in Korean and U.S. stocks, hoping that the market will remain bullish for more years to come,” an office worker in his 30s said. “But the value of my assets ended up decreasing by half less than a year after I made the investments. I came to realize that I entered the market at the end of a bull cycle.”
He also expressed frustration over the growing interest burden.
“I did not hesitate to take out the loan last year when the benchmark rate was close to zero,” he said. “But my interest burden almost doubled in about a year. Falling stock values and rising interest pressure keep giving me stress every day.”
The benchmark KOSPI reached a historic high of 3,300 points in June 2021 on excess liquidity, but fell sharply this year. The main bourse plunged to around 2,400 points as of Wednesday.
The housing market has also
But my interest
burden almost doubled in about a year. Falling stock values and rising interest pressure
keep giving me stress every day.
extended a losing streak in recent months after surging over the past few years. According to data from the Korea Real Estate Board, the average apartment price in Korea plunged at the sharpest rate since 2012. As of Oct. 31, the price fell by 0.32 percent from a week earlier, which was the biggest fall seen since the board started compiling weekly housing price data in 2012.
Another office worker surnamed Kim said he recently sold all of his stocks at a loss on fears of further price falls.
“I started investing in stocks after taking out loans worth around 30 million won last year, but decided not to wait for their rebound, as the bearish market sentiment keeps disturbing me,” he said. “I recently dumped all of them at a loss of around 10 million won.”
“It would have been better for me to save the money and purchase an apartment during this period of market adjustment,” Kim said. “Even if the loss is painful, I cannot turn back the clock. I will try not to make such a mistake again.”
Another 30-something worker at a major conglomerate here recalled the buying spree in the local housing market in 2020 and 2021.
“After getting married a few years ago, I purchased an apartment in Gyeonggi Province soon after the outbreak of the pandemic,” he said. “Many young people must have felt a similar urge due to escalating fears that apartment prices would keep soaring at an alarming pace, which pushed most of them into engaging in a panic buying of apartments in Seoul and its surrounding cities.”
Most home prices in the capital area have fallen to pre-pandemic levels, so most young people who jumped on the apartment-buying bandwagon for the past two years probably feel frustrated by their decision, he said.
“One lesson that I learned is that we should not make investments when most other people do amid bullish sentiment,” he said. “One botched investment can cause a lot of damage in terms of opportunity costs. If I had not purchased the apartment back then, I could purchase a better one at a lower price now.”
But others said they will stay focused on the market, undeterred by the recent losses.
“I invested in cryptocurrencies during the pandemic era, and enjoyed the inherent volatility of the crypto market,” an office worker in his mid-30s said. “Many people still have a negative perception of crypto investments due to their volatility, but few of them understand the industry and market. I also wince with pain when I think about my losses from the crypto investments, but firmly believe opportunities will come again after the macroeconomic uncertainties clear away here and abroad.”
The office worker said he intends to hold on to his financial assets.
“I will never sell major cryptocurrencies such as Bitcoin and Ethereum at a loss, and will keep doing my best to grab forthcoming opportunities in the market,” he said. “Cryptocurrencies’ rebound will be way more powerful than any other assets.”