South Korean investors purchased a net $3.589 billion in US stocks from July 1-27, according to Korea Securities Depository data reported by The Fact on July 29. The buying surge—5.5 times June's $632.96 million total—occurred despite government incentives designed to redirect capital to domestic markets, including single-stock leveraged ETFs launched in May and tax-advantaged Domestic Market Return Accounts (RIA). Funds concentrated in US semiconductor leveraged products and SK Hynix American Depositary Receipts as South Korea's investor deposit balances fell from 139.69 trillion won in early June to 104.29 trillion won by July 23, reflecting sustained outflows from the domestic stock market.
Government Introduces Single-Stock Leveraged ETFs in May
South Korea's Financial Services Commission launched 16 single-stock leveraged ETFs in May, approximately four months after announcing the plan in late January. The products track Samsung Electronics and SK Hynix as underlying assets. Kim Yong-beom, Senior Presidential Secretary for Policy, stated in a mid-January media interview that the Financial Services Commission was reviewing leveraged products and individual stock ETFs available in US markets to retain domestic investors. The policy aimed to redirect investment demand from overseas leveraged products to the domestic market.
US Semiconductor ETFs Attract $1.759 Billion in July Net Purchases
The Direxion Daily Semiconductor Bull 3X ETF (SOXL), which provides 3x exposure to the Philadelphia Semiconductor Index, received $1.759 billion in net purchases from South Korean investors during July, making it the most-purchased US stock. SK Hynix ADR net purchases increased from $613.67 million on July 23 to $812.38 million by July 27. Alphabet and ProShares Ultra QQQ (QLD), which provides 2x exposure to the Nasdaq-100 Index, also attracted inflows. Domestic credit balance financing fell from 37.73 trillion won to 32.74 trillion won during the same period, according to Korea Financial Investment Association data.
RIA Tax Deduction Reduces to 50% Starting August 1
The Domestic Market Return Account (RIA) tax benefit will decrease to a 50% deduction rate starting August 1. The government introduced RIA this year, initially offering a 100% deduction on capital gains from overseas stock sales when funds were reinvested in domestic listed stocks or domestic equity funds. The deduction rate decreased to 80% during June-July. The phased reduction represents a declining tax incentive for repatriating overseas investment capital.
Dollar Deposits Reach Record $97.8 Billion in June
South Korea's resident dollar deposits totaled $97.8 billion at the end of June, marking the highest level since the Bank of Korea began compiling the data in 2012, according to the central bank. Total foreign currency deposits reached $113.33 billion, an increase of $1.08 billion from the previous month, representing the third consecutive monthly rise. The Bank of Korea attributed the increase to higher customer deposits at securities firms and trade payment receipts by large corporations. Securities firm customer deposits reflect growing dollar reserves for overseas stock investment.
The Economist Compares Korean Stock Market to Casino
The Economist published commentary comparing South Korea's stock market to a casino, citing aggressive leveraged investing by retail investors and single-stock leveraged ETFs as factors increasing market volatility. The publication stated, "No matter how much financial authorities regret it now, it will not be easy to pull Korean investors out of the casino," assessing that belated regulation alone would struggle to reverse overheated investment sentiment. A financial investment industry official told The Fact that the government's policy produced a paradoxical result, with funds flowing more heavily into US semiconductor leveraged ETFs and technology stocks after the introduction of single-stock leveraged ETFs and RIA.
FAQ
How much did South Korean investors buy in US stocks during July?
South Korean investors purchased a net $3.589 billion in US stocks from July 1-27, according to Korea Securities Depository data. This amount is 5.5 times the $632.96 million net purchase total recorded for June.
What is the RIA tax deduction rate starting August 1?
The Domestic Market Return Account (RIA) tax deduction rate will decrease to 50% starting August 1. The rate was initially 100% when the program launched this year, then reduced to 80% during June-July.
