Finfluencers, retail investors, and hashtag capitalism – The view from South Korea and India

In a series of papers, I argue that social media has helped connect corporations and society like never before. These papers are part of a project called hashtag capitalism which begins with my article titled ‘Hashtag Capitalism – An Introduction’. In that paper, I explain that ‘hashtag capitalism’ refers to the phenomenon wherein social media has allowed people to participate in the corporate world, by coming together as investors and using that to effect change on environmental, social and governance (ESG) issues, or by coming together as customers or employees and bringing about policy change on relevant issues, or by acting as individuals and commenting on and reacting to issues in the corporate world that have social implications.

Within this phenomenon of hashtag capitalism, the rise of ‘finfluencers’ (online influencers in finance and investing) and retail shareholders are an important, if not the most important, issue. The growth of retail investors in the hashtag capitalism age means that they can coordinate on social media almost without cost. Finfluencers, by influencing retail investor behaviour through the content they provide on social media also help solve collective action problems that retail investors have faced in the past. Finfluencers are also able to help people who are interested in a company (or in some cases, fans of a company) to become first time shareholders, thus contributing to financial inclusion and education. While most of the literature on retail investors and finfluencers focuses on developments in the US including the impact of retail investors on the stock price of Gamestop, these trends are actually seen in many other jurisdictions as well. In my paper ‘Finfluencers and Other Tech Disruptions to Corporate Law - Insights from South Korea and India’, I look at how finfluencers in South Korea and India are impacting both companies and society.

In South Korea, the new wave of retail investing already had an impact as early as 2020, when it was reported that young retail investors were investing parts of their salary into the stock market, especially into instruments that allowed them to bet on movements on the price of oil. These investors suffered significant losses when oil prices collapsed. However, by 2021, YouTube channels providing investment advice had mushroomed, perhaps because the number of retail investors in the market had skyrocketed. Young retail investors had begun to educate themselves and invested directly, rather than through mutual funds. Beyond making an impact by coordinated buying and holding of shares in certain companies, retail investors have also begun to actively participate as shareholders. In 2023, retail investors supported a campaign by a domestic activist fund, Align Partners, to appoint an independent auditor on the board of SM Entertainment, which is a K-Pop management company. The campaign was also able to put an end to related party transactions that the company was involved in. This preceded the Disney proxy vote and the Tesla shareholder vote about Musk’s compensation in the US, where retail investors were important groups. After examining some other examples from South Korea in the paper, I make two conclusions: (1) retail investors in South Korea are more discerning than the ‘meme stock’ retail investors seen in the US, and (2) retail investors in South Korea, similar to their US counterparts, are interested in good corporate governance (as is evidenced in the SM Entertainment case) rather than just short-term shareholder returns.

In India, while there was no GameStop-like episode, the rise of finfluencers has had a big impact. Although people in most Indian cities speak and work in English, sections of the rural population are more comfortable in their respective local languages. Thus, finfluencers who speak to their audiences in local languages are driving financial education in the far reaches of the country. Another interesting observation emerged when Hindenburg Research, a firm that engages in short selling, published a report about the Adani group of companies, stating that the group’s stocks were overvalued, and accusing Gautam Adani, founder of the Adani group, of accounting fraud and stock market manipulation. Since Adani is seen to be close to the Indian prime minister, the issue became a politically charged debate. The fact that some finfluencers who supported the report were accused of supporting it on political grounds should caution us about finfluencer activity causing populism to spill over into corporate governance more than it has thus far.

Regulators across jurisdictions would do well to consider the developments in South Kore and India because these trends are likely to spread across jurisdictions. US retail investors have also begun to engage on corporate governance issues in recent times (the Disney Proxy contest is an example). Further, populism is seeping into markets elsewhere too (for instance, share prices of TruthSocial, the social media company backed by Trump, were driven up by Trump fans coordinating their behaviour around Trump’s online statements/ events involving Trump). At the same time, the financial education and inclusion that finfluencers seem to be driving in India is a useful trend that other jurisdictions should consider before introducing regulations that might chill finfluencer activity.

Dr. Akshaya Kamalnath is Associate Professor at the ANU College of Law.

The full paper is available here.