South Korea’s Capital Market Projected to Shrink After 2034 Due to Population Aging

As South Korea entered a super-aged society at the end of last year, there is a forecast that household assets in the capital market, such as stocks, funds, and bonds, will rapidly shrink after peaking in 2034. This is because the elderly generation aged 65 and over tends to increase their proportion of safe assets like real estate or savings deposits over capital market assets as they age, while the participation rate of the younger generation in the capital market is not increasing.

According to the report titled “Aging and Household Assets and Consumption” released by the Korea Capital Market Institute on Feb. 12, the aging of Korean society is likely to reduce the scale of household capital market asset holdings and shrink the demand for risky assets, including stocks, in the capital market. The research institute analyzed the patterns of capital market asset holdings by generation from 2007 to 2021 (with 2014 as the base value of 100) and predicted that the household capital market asset holdings would peak at approximately 137 in 2034 and then sharply decrease, reaching a level similar to that of 2009 by 2049. In contrast, total assets, net assets, and total financial assets are expected to continue increasing until 2050, albeit at a gradually slower rate.

This outcome is the result of two intertwined causes: the elderly’s preference for real estate and the declining participation rate of the younger generation in the capital market. The proportion of real estate in elderly households’ assets increased from 55% in 2015 to 64% in 2021, while the proportion of financial assets, including capital market assets, remained at 11%. On the other hand, there was no observed tendency for the recently born generation to invest more in capital market assets than previous generations. The report pointed out, “Although the participation of the younger generation in the stock market increased after the COVID-19 pandemic, it is still low compared to countries with developed capital markets like the United States.”

South Korea entered a super-aged society at the end of last year, with the proportion of the elderly population aged 65 and over exceeding 20%. By 2072, 47.7% of the population, nearly half, will be elderly. The report warned, “If the proportion of elderly households increases, the average demand for stocks and funds may decline, and the 30s to 50s generation is not filling that gap. If future generations do not significantly increase their holdings of capital market assets compared to the current generation, there is no clear way to absorb the demand shock for capital market assets.”

To prevent a capital market shock, the Korea Capital Market Institute suggested actively encouraging the participation of the younger generation in the capital market through continuous value-up (corporate value enhancement) policy implementation, restoring market trust, and expanding tax-benefit accounts. Additionally, it emphasized the importance of building AI-based personalized asset management services by securities companies and asset management firms, as most individuals are small investors.