South Korea’s Stock Market Rollercoaster

Welcome to Tech News Briefing, it's Friday, August 28th, Ami Manimoiz for the Wall Street Journal. Buying a new phone might save you a few hundred dollars. But you could also be purchasing someone else's problems, or something more sinister. We'll break down how to get a good deal on a refurbished phone without stress, scams, or spyware. And the success of SK Heinrichs and Samsung has helped make South Korea's stock market one of the world's hottest in recent years. But also one of the most volatile. We'll take a closer look at the country's benchmark Cosby Index and what its wild ride could mean for the broader AI trade. But first, as the price of new phones ballooned from the memory chip crisis, getting a refurbished phone can be a good deal. But shopping on the second hand market also comes with risks, and the wrong bargain can quickly become a costly mistake. Here to break down how to buy a used phone safely, and what to watch out for, is WSJ personal technology columnist Nicole Nguyen. Nicole, let's start with the basics. What does refurbished actually mean compared to just used? Refurbished means that this phone has been looked at, cleaned, repaired, maybe some of its parts have been replaced. Also, more importantly, a forensic wipe of the phone to make sure that there are no lingering accounts that could prevent a cellular activation in the future, or lingering data that might inhibit your ability to use the phone. What are the most common problems associated with refurbished phones? The more common issues you're going to run into are a lingering Apple or Google account. So if that phone is still on a Find My Network associated with someone's Apple or Google account, you can't activate it on a cellular network. You wouldn't be able to transfer it to your account. Other problems include maybe that phone hasn't been paid off by its previous owner, and so the carriers can block it from activating on U.S. cellular networks. Also, shoddy replacement parts, so maybe a reseller refurbished a phone with an aftermarket battery that's lower quality, and isn't last as long, or it's not recognized by the system. So you run into update issues, faulty ports, so maybe the charging port doesn't work as well, or the headphone port doesn't work as well. So buying from the filmmakers directly, and also wireless carriers, who are part of this gigantic secondhand refurbished industry, and they repair and renew models professionally, you can avoid a lot of these problems. Are those potential defects or faulty-ish repairs something that the average consumer would be able to eyeball, or do you need to take it to a third party to really evaluate? I would say if you are running into any issues on a secondhand phone, if that phone is running hot, if the battery drains really fast, if there are migration issues, which could point to potential malware being installed on the device, stop using the phone, and return it immediately. A lot of people don't pay enough attention to warranties when they're buying new phones. If you're buying from the original manufacturer, you'll typically get a one-year warranty, which is the gold standard. 90 days is okay, but I'd say if you're buying a used phone, make sure it has a one-year warranty. You mentioned malware. How worried should people be about malware or spyware on a secondhand phone? My colleague Joe Barrett wrote this incredible investigative story on a jury duty scam involving a woman, a victim who had recently bought a refurbished Samsung device, and that device expert say was likely loaded with malware. It's a really scary scenario where she lost tens of thousands of dollars. Luckily, malware is rare. I'm not saying it doesn't exist, but it's relatively rare in the market. And if you're buying directly from Apple, Samsung, or Google, or one of the big major wireless carriers, AT&T Verizon, T-Mobile, there's a very good chance that your phone is not going to have any malware associated with it. How old is too old when it comes to buying used phones? Every phone unfortunately has an expiration date. This is true of most modern technology these days. The more recent flagship devices are supported for seven years, and then after that they don't get security updates and software updates. My personal rule of thumb is to not buy any phone that's older than two years old. That was WSJ personal tech columnist, Nicole Nguyen. Would you consider buying a secondhand phone? If you're a listener on Spotify, let us know in the comments. Coming up, South Korea had the world's hottest stock market for most of the past year. We're breaking down why suddenly the summer has been on a roller coaster ride. That's after the break. On Wall Street, a 1% move in a major stock index like the Dow or the NASDAQ is enough to get investors attention. But for the South Korean Cosby, that might be welcome news these days. The country's benchmark index has swung so wildly that investors have given it a new nickname, Roller Cosby. It was the world's top performing stock market last year, with a 76% gain. By mid-2006, its homegrown chip giants, Samsung Electronics and SK Heinex, accounted for more than 50% of the Cosby's value. But this summer, the ride took a stomach churning turn. AI stocks lost their footing as investors began to question whether enthusiasm pushed their stocks too far, too fast. WSJ reporter Jack Pitcher joins us now to explain what sent the Roller Cosby off the rails and what happened to the everyday investors caught up in the fallout. I want to start off with something you talk about in your story, which is ants. Can you tell us what an ant is and why do they matter so much in this market? This is a term that's become really popular among South Korean individual investors. It means they're weak individually, but capable of collective power, just like an ant colony. What we've been seeing in Korea is a version of what happened in the US a few years ago, where lots of individual investors were banding together on social media to try and buy specific stocks and make money. But that was a somewhat niche thing in the US that's gone very mainstream in South Korea, where we've seen a huge portion of individuals that live there. It was like your grandmother investing in and buying the biggest companies trying to make quick money and also using more and more borrowed money to try and juice their bets. Were there any stories of individual investors in your reporting that stuck out to you? So many people got involved in this and lost huge sums of money. This is a market that fell about 40% over six weeks earlier this summer. That's a huge drop equivalent with what the entire US market did over several years during the financial crisis, just happening in a few weeks. We talked to a sound engineer who had been laid off recently and got a big severance check. He put his whole severance check he said into investments in the Korean index, and he lost almost half of it just within a week. We found a lot of examples like that of people's money really sort of evaporating at a much faster pace than they might have expected with the rest they thought they were taking on. Did the fallout spread beyond Korea? Were US investors impacted as well? It did. So a little background on Korea's markets. They have two really big companies there Samsung Electronics and SK hynics that both manufacture memory chips among other products and this whole rally in Korea really started last year when all chip makers especially those that focus on memory started to see exploding demand for their product from data centers from companies that are building out. So if you're buying into these companies right now, what are you betting on? That's part of the problem. So people are betting on the fact that memories going to stay in demand for a long time and profits are going to be huge. But things that rise very far very fast, they often correct down and a sort of psychological component can come into play. Something has been going up day after day and suddenly it falls 5%. A certain number of the people who have held and bought it might get spooked and say I want to get out now. I want to lock in these profits. If everyone starts doing that at the same time, the price action can very quickly reverse in the opposite direction. What lessons should American AI investors learn from what happened in South Korea? A big thing with stock investing that people have preached for a very long time is diversification. So usually people buy a country's entire stock index through funds because they want diversified exposure to stocks. In the US, it's not uncommon for any individual company, even a really large profitable one, to have some very volatile price swings. But if you're buying the entire market in all these different companies, generally in the US you've been fairly protected against massive swings, you're diversified across different industries, different businesses. What's happening in Korea is that the largest companies are such a large component of their stock index that if you're just buying the Korean country index, it's really like you're making a bet on just a small handful of companies and you're exposed to that same volatility. We talked about that 40% plunge in the Cosby, but where do things stand now as we're talking? It's Thursday afternoon. What does the Cosby look like? The bottomed towards the end of July and that 40% draw down over a couple of months, it's now recovered about 20% from that bottom, but still stands substantially below its peak earlier this summer. That was WSJ reporter Jack Pitcher, and that's it for Tech News Briefing. If you're a listener on Spotify, be sure to leave us a comment. Today's show was produced by Julie Chang. I'm your host, Emoni Moiz. Jessica Fenton and Michael Labale wrote our theme music, our supervising producer is Katie Ferguson. Our development producer is Aisha L. Moosleem. Chris Zinsley is the deputy editor of Audio for The Wall Street Journal. And Lee Taul Moulade is our senior director of shows. We'll be back later this morning with TNB Tech Minute. Thanks for listening.