Money is flowing into domestic high-dividend stocks. This is interpreted as a reaction to the huge tax cut plan, named the "One Big Beautiful Bill Act," that the Donald Trump administration is promoting. If this act is implemented, the tax rate applied to foreign investors who invested in U.S. dividend stocks could soar from 15% to 35%.
According to the Korea Exchange's information data system on the 15th, the assets under management (AUM) of domestic high-dividend stock exchange-traded funds (ETFs) were recorded at 1.7542 trillion won as of the 12th of this month. This represents an increase of 440.1 billion won within one month since the Trump administration announced the tax cut plan on the 12th of last month.
The "One Big Beautiful Bill," which passed the House of Representatives at the end of last month, primarily aims to provide tax cut benefits to Americans and U.S. corporations while increasing the tax burden on foreign investors. It is currently under consideration in the Senate. The market is paying close attention to the "Section 899 Clause," which contains additional tax imposition regulations on foreign investors.
The Section 899 clause significantly raises the tax rate on investment income of foreign investors from dividends, interest, royalties, and rents within the U.S. It will start with a 5% increase in the first year after the bill passes, followed by an annual increase of 5% for a total of 20 percentage points over four years.
Currently, domestic investors are subject to a withholding tax rate of 15% on U.S. investment dividends according to the Korea-U.S. tax treaty. However, if the bill passes, the rate could rise to a maximum of 35%. For example, if one invests 500 million won in a U.S. dividend stock ETF with a dividend rate of 10%, the tax would increase from 7.5 million won annually to 17.5 million won, an increase of 10 million won.
An official in the asset management industry noted, "The investment appeal of offshore dividend stock ETFs has diminished due to the reform of the foreign fund tax payment system earlier this year. If the U.S. tax cut plan also passes in this situation, the trend toward domestic dividend stock ETFs will accelerate further."
The most purchased domestic high-dividend stock ETF by domestic investors in the past month was the "PLUS High-Dividend Stock" managed by Hanwha Asset Management. It is the largest product among domestic equity dividend ETFs. The AUM of the "PLUS High-Dividend Stock" ETF increased by 219.7 billion won over the month, reaching 928.2 billion won.
The AUM of Mirae Asset Global Investments' "TIGER Bank High-Dividend Plus TOP 10" is 398.2 billion won, an increase of 58.7 billion won during the same period. Following Hanwha and Mirae Asset, Shinhan Asset Management's "SOL Financial Group Plus High-Dividend" (51.5 billion won to 83.4 billion won) and Samsung Asset Management's "KODEX High-Dividend" (46.8 billion won to 59.9 billion won) followed.
Expectations for the value-up policy of the newly launched Lee Jae-myung administration are also seen as a background for the concentration of funds into domestic high-dividend stock ETFs. President Lee Jae-myung had proposed reforms to the stock buyback system, which provides for the destruction of treasury stock, and the expansion of directors' duties to protect common shareholders as part of his campaign during the presidential election.
Kim Jeong-seop, head of the ETF Division at Hanwha Asset Management, said, "The 12-month forward price-to-book ratio (PBR) is 4.4 times in the U.S., 2.07 times in Europe, and 1.36 times in Japan. In contrast, Korea is at 0.86 times, indicating it is significantly undervalued and has ample potential for further increases."