Individual investors are turning back to the U.S. stock market. On top of the KOSPI's extreme volatility, confusion over policies such as regulations on single-stock leveraged exchange-traded funds (ETFs), an overhaul of individual savings accounts (ISAs), and measures to "prevent stock-price suppression" is deepening distrust that makes it hard to see the domestic market as a long-term investment destination.
◇ Ants heading back to the U.S. again…dry powder for the Korean stock market stays put
According to the Korea Securities Depository (KSD) Seibro securities information portal on the 10th, from the 3rd to the 7th the top three U.S. stocks net bought by domestic individual investors were Amazon, SanDisk, and Micron. Net purchases were $176.21 million (about 249.5 billion won), $161.44 million, and $111.04 million, respectively. After big techs' strong cloud results, buying quickly shifted to individual U.S. tech stocks.
The recent trend of returning to the domestic market did not last long. In the second quarter, overseas stock investment by nonfinancial corporations, including individual investors, swung to net selling for the first time in 10 quarters, but it turned net buying again starting in June. Net purchases of U.S. stocks swelled to $4.6425 billion in July.
Reuters analyzed that Koreans' purchases of U.S. stocks last month far exceeded last year's monthly average of $2.7 billion and, for the first time since February, also surpassed purchases of domestic stocks. It said the flow of funds shows how quickly individual investors' confidence in the domestic market is eroding.
In contrast, money headed for the domestic market has hardly grown. On the 6th, investor deposits stood at 104.0712 trillion won, about the same level as a week earlier at 104.6584 trillion won. On the 3rd, they fell to 102.8256 trillion won, the lowest since mid-Feb., and margin loan balances also fell 10.4% over the same period from 32.1531 trillion won to 28.794 trillion won. Domestic market return accounts (RIA) also saw a 526.8 billion won outflow last month, turning to net outflows for the first time since launch.
◇ Rules and taxes repeatedly revised…foreign media warn of "policy trust"
The problem is not only market volatility but also the shaking predictability of policy. As controversy over overheating in single-stock leveraged products grew, financial authorities applied a basic cash margin of 30 million won for new and additional purchases of domestic and foreign listed products starting on the 31st of last month. Among investors, there were complaints that after allowing the products, authorities tightened regulations belatedly, abruptly changing investment conditions.
Flip-flopping over tax and system reforms has also fueled distrust. The ISA overhaul the government released on the 3rd faced criticism that carryover limits on contribution caps and setting maturities would reduce tax-saving benefits.
The stock-price suppression prevention plan was also engulfed in questions over effectiveness. As the backlash grew, President Lee Jae-myung ordered a full reexamination of the two plans on the 7th, four days later.
Abroad, there is also criticism that repeated policy confusion is undermining confidence in investing in Korean stocks. Bloomberg columnist Shuli Ren recently warned that the Korean market could be perceived by global investors like China as a "hard-to-invest market." The point was that even if Samsung Electronics and SK hynix have favorable earnings prospects and KOSPI valuations have fallen, policy failures that heighten volatility reduce the reasons for global investors to take risks in Korean stocks.
The Financial Times (FT) went further, linking the recent market turmoil to the government's stock-boosting policies. It assessed that although the Lee Jae-myung administration has sought to channel household funds concentrated in real estate into productive investments such as equities and has emphasized stock gains as a key economic achievement, the subsequent sharp KOSPI drop increased individual investors' losses, shaking trust in the policies instead.
The government is pushing back against foreign media's criticism. The Financial Services Commission said Korean corporations' earnings outlooks have improved compared with when share prices were at their peak and that it is implementing supplementary measures for single-stock leveraged products, maintaining that the fundamentals of the Korean market are solid.
An official at a financial investment firm said, "With individual money moving overseas again, it is more important to improve the predictability of tax and market policies than to rely on short-term market-boosting measures."