The balance of the return-to-domestic-market account (RIA) has surpassed 1 trillion won, but it remains modest compared with the amount Korean retail investors trading U.S. stocks hold in foreign shares.
According to the Korea Financial Investment Association on the 29th, as of the previous day (the 28th), the number of RIA accounts stood at 183,087, with a balance of 1.2502 trillion won. The RIA account is a special account the government introduced temporarily for this year to draw back into the domestic capital market the funds that Korean retail investors trading U.S. stocks had invested in overseas equities.
The key benefit is a capital gains tax reduction on foreign stocks: if investors transfer the overseas stocks they held before Dec. 23 last year into an RIA account, sell them, and then reinvest in domestically listed stocks, they can receive up to a 100% deduction on capital gains tax.
The RIA account balance jumped about 2,300% in 28 trading days from 51.9 billion won on Mar. 23, the launch date, to surpass 1 trillion won. However, it is still small compared with the total funds of Korean retail investors trading U.S. stocks. According to the securities information portal Say브로, as of the 27th, the amount of foreign stocks under custody reached $188,405.97 million (about 277.539 trillion won), showing a large gap with the funds returning home.
In particular, the amount of foreign stocks under custody has instead grown, surging about 64% from $114,792.46 million a year earlier. For U.S. stocks, the custody amount rose from $105,151.51 million a year earlier to $178,777.16 million as of the 27th.
Even with the increase in RIA balances, there appear to be limits. First, the key benefit—the capital gains tax deduction rate—varies by the timing of the sale, and investors must sell foreign stocks by May to receive a 100% exemption from capital gains tax. In addition, the cap on foreign stock sales eligible for benefits through an RIA account is 50 million won, combining principal and gains from foreign stocks.
However, net buying of foreign stocks has recently eased slightly. Looking at this year's buy-sell trends in foreign stocks, purchases still exceeded sales from January to March, but sales overtook purchases for the first time this month. Investors sold $1,245.24 million of foreign stocks in April alone.
An official in the financial investment industry said, "Investors tend to follow returns," and noted, "Just as Korean retail investors trading U.S. stocks increased during past U.S. market rallies, the recent rise in the domestic market will be a key factor driving funds into RIAs."