The allure of US equities continues to captivate South Korea’s retail investors, fueled by a belief in a continuing stock market surge in a second term of the Donald Trump presidency and disillusionment with lackluster domestic share performance. This shift marks a significant trend as holdings of US stocks by South Korean investors hit a record $112.1 billion by the end of 2024, witnessing a substantial 65% increase from the previous year. In stark contrast, net selling of local shares listed on the Kospi benchmark amounted to Won5.4 trillion ($3.6 billion) in 2023, leading to a nearly 10% dip in the index. Despite government efforts to elevate historically low valuations through initiatives like “Corporate Value-up,” the appeal of overseas stocks, particularly in the US, has been irresistible to South Korean investors.
Key Points:
- Tesla emerged as the preferred foreign stock among South Korean investors, with a combined holding of $24.5 billion as of last month, followed by Nvidia, Apple, and Microsoft.
- The dissatisfying performance of the local equity market has been a driving force behind the shift towards US stocks, indicating a preference for higher shareholder returns.
- Political instability and recent events, including the impeachment of President Yoon Suk Yeol, have contributed to further uncertainty and likely fuel continued interest in overseas investments.
For many individual investors in South Korea, the appeal of US markets lies in the perceived stability and growth potential that is lacking in their domestic market. HJ Baek, a communications manager at a local brokerage, exemplifies this sentiment by voicing her preference for long-term investments due to the volatility of the domestic stock market. With the absence of local companies demonstrating robust growth prospects, many investors are drawn to the higher potential returns offered by investments in foreign stocks.
- Baek’s foreign investment portfolio has yielded a 20% return, contrasting sharply with estimated losses of 30% on her domestic equity holdings.
- This dissatisfaction with the “Korea discount” attributed to chronic undervaluations has led to individual investors seeking opportunities abroad for better returns.
Despite efforts by South Korean authorities to revitalize the local stock market, such as initiatives promoting capital efficiency and shareholder returns, the response from listed companies has been lukewarm. Analysts emphasize the need for regulatory reforms and tax incentives to address underlying issues that have kept valuations depressed and impeded market growth.
In Conclusion:
The allure of US equities for South Korean investors underscores a broader disillusionment with the domestic stock market and the quest for better returns. While regulatory reforms and initiatives aim to address the underlying issues, challenges remain in enhancing shareholder value and market transparency. As investors navigate uncertainties both at home and abroad, the shift towards overseas markets signifies a broader trend towards diversification, driven by a pursuit of higher returns and stability. Amidst the evolving investment landscape, the call for systemic reforms and investor-friendly policies echoes the shared goal of fostering a resilient and competitive market environment for all stakeholders.
