[Good Morning Stock Market] Donghak Ants Shake Off Major Shareholder Transfer Tax Concerns, Will They Benefit Riding the 'Blue Wave'?

US Stock Market Already Predicts 'Biden' Victory
Korean Time 9 AM Florida Voting Closes, Key Battleground

KOSPI Sell Pressure Vanishes as Major Shareholder Transfer Tax Remains
Biden Win and Senate Control 'Blue Wave' Confirmed, Further Rise Expected

[Asia Economy Reporter Minji Lee] As expectations for a ‘Blue Wave,’ signifying Joe Biden’s victory and Democratic control of Congress, rise, the U.S. stock market closed higher on the 3rd (local time). The Dow Jones Industrial Average rose 2%, and the tech-heavy Nasdaq Composite increased by 1.8%.

With growing anticipation of Biden’s win, the domestic stock market is also expected to maintain an upward trend. Additionally, since the threshold for determining major shareholders subject to capital gains tax on stock transfers remains at 1 billion KRW, concerns over year-end sell-offs that had been suppressing the domestic market are likely to dissipate.

[Image source=Yonhap News]

◆ Sangyoung Seo, Kiwoom Securities Researcher = The U.S. stock market is treating the ‘Blue Wave,’ where Democratic candidate Biden wins and the party gains control of Congress, as a foregone conclusion. Based on this, stock indices have risen, accompanied by a weaker dollar, and increases in government bond yields and international oil prices. It is presumed that expectations for a large-scale stimulus package next year have been factored in. In the stock market, sectors benefiting from Biden such as finance, healthcare, and industrials showed strength.

The Senate is a key area to watch closely. For the Blue Wave to materialize, the Democrats must also win the Senate. However, the Senate race remains difficult to predict. Republican centrist Susan Collins is trailing the Democratic candidate in Maine polls, but the outcome remains uncertain. In many states such as Georgia, Minnesota, and Montana, the possibility of Democratic victories cannot be assured. If the Republicans retain the Senate, the size of the stimulus package, which the market is currently assuming, could be reduced or delayed.

All voting in key battleground states Florida and Pennsylvania will conclude at 9 a.m. and 10 a.m. Korean time, respectively. If Biden’s chances of winning in these areas increase, the market is expected to rise further. Florida has already begun counting mail-in ballots, so results are expected to be announced sooner than anticipated. However, Pennsylvania started counting today, so results may be somewhat delayed. The domestic stock market is expected to show high volatility depending on the vote count trends in Florida and Pennsylvania and the Senate election results.

Deputy Prime Minister for Economy Hong Nam-ki attended the plenary meeting of the Planning and Finance Committee held at the National Assembly on the 3rd and adjusted his glasses while receiving questions related to his resignation. Photo by Yoon Dong-joo doso7@

◆ Daejun Kim, Korea Investment & Securities Researcher = With the major shareholder capital gains tax controversy settled, concerns over major shareholder sell-offs until 2023 have disappeared. If the tax threshold had been lowered to 300 million KRW, the market expected large-scale sell-offs by individuals at the end of this year. This expectation was based on experiences at the end of 2017 and 2019 when the major shareholder tax threshold was changed. Especially this year, individual investors known as Donghak Ants had massively purchased stocks, causing their holdings to surge, which heightened concerns over year-end selling pressure.

With the resolution of the major shareholder capital gains tax issue, the risk factors for the domestic stock market are considered to have vanished. The changed policy stance is expected to alter the KOSPI’s trajectory from previous forecasts. Originally, price adjustments in November and December were anticipated to reflect year-end selling pressure, but future movements are expected to differ significantly from these projections. Since individual investors are not expected to liquidate their holdings, year-end selling pressure will remain at normal levels.

This decision suggests that tax burdens in the Korean stock market will not be significant for the next two years. Although the family aggregation system remains in place, the major shareholder tax threshold will not be lowered to 300 million KRW, which is expected to quickly ease supply-demand uncertainties. Additionally, the securities transaction tax rate will be reduced by 0.2 percentage points to 0.23% next year, which should improve market sentiment further. Considering taxes and supply-demand factors, no major crises are expected until 2023.