[Investment Shift, Y-3] ① Domestic and Overseas Investment Reversal by Retail Investors... "3 Years Left"

Majority of Individual Investors Nearing Time to Move Overseas
If Funds Flow Abroad, Domestic Companies Face Challenges in Financing Volume and Costs
Time to Reassess K-Value Up Direction and Effectiveness Amid Investor Movements

"Ants' overseas investment reversal is three years away."

The CEO of Securities Company A recently emphasized this at an executive meeting. This is because the proportion of overseas investments within the total investment amount of individuals using Company A's stock trading service is rapidly increasing. In 2019, it was at the level of 1%, but it expanded to about 25% in four years. Based on internal analysis that it will take about three years to exceed half, or 50%, he urged executives to actively prepare for the overseas investment reversal situation.

Despite policy efforts such as the government's value-up program, the offshore outflow of domestic individual investors is accelerating. The investment reversal situation is not limited to Securities Company A. According to a recent report on the characteristics and evaluation of individual investors' overseas securities investments published by the Bank of Korea, the share of individuals in private sector overseas securities investments (based on balance) rose from 7.3% at the end of 2019 to 20% at the end of 2023. In terms of amount, it reached a record high of $77.1 billion (approximately 105 trillion KRW). As of the most recent figure in March 2024, it continues to grow to $83.8 billion (approximately 114 trillion KRW).

Brave Ants... Concentration on US Tech Companies, Aggressive Investments in 3x Leverage ETFs

Unfortunately, individuals' overseas investments are not healthy investments. According to the Bank of Korea's analysis, rather than the positive aspect of portfolio diversification, they showed aggressive and risky investment tendencies. The overseas investment behavior of ants was found to be concentrated on specific stocks and leveraged investments. Individual-held overseas stocks focused on large tech stocks such as Tesla, Apple, Nvidia, Google, and leveraged exchange-traded funds (ETFs). In particular, the investment scale in ETFs tracking three times the volatility of US stock indices and government bond price changes rapidly increased from $190 million (about 260 billion KRW) at the end of 2020 to $5.8 billion (about 7.92 trillion KRW) at the end of 2023.

Kang Sohyun, Director of the Capital Market Research Institute, said, "Whether overseas or domestic, we need to pay close attention to whether investments genuinely help investors form asset classes." She added, "If overseas investments are concentrated on trending products due to herd behavior or if investors hope for large fluctuations in overseas markets and invest accordingly, it cannot be considered a healthy investment that helps individuals grow their assets."

Reasons Why Ants Go Overseas... 'A Need for Cold Analysis'

Despite the government's and companies' value-up efforts, there is an analysis that restoring trust in the Korean capital market will not be easy. Professor Jeong Dojin of Chung-Ang University's Department of Business Administration pointed out, "If the proportion of overseas investments increases instead of domestic investments, both the cost and volume of funding for our companies could become problematic." He added, "It means that the Korean capital market itself is currently not trusted, which ultimately results from the inefficiency of the capital market." Professor Jeong further stated, "When looking at the movement of domestic investors, it is questionable whether the current policy direction is truly aimed at maintaining the efficiency of the capital market and how effective it is."

Experts predict that the outflow of funds overseas is an unstoppable trend. There are calls for painful efforts to enhance the attractiveness of the domestic capital market.

Kim Hyungkyun, Head of Special Situations at Cha Partners Asset Management, said, "Ultimately, the indices of domestic and overseas markets show everything." He explained, "Investors have been disappointed because despite investing in KOSPI for 10 to 20 years, the stock price remains flat, whereas the US stock price keeps rising endlessly." He evaluated, "The unresolved issue of financial investment income tax and other tax matters may have also had some influence. There might have been movements to prepare in advance amid uncertainty about tax deferrals. Also, some investors felt disappointed because the recently introduced Korean value-up program is conducted entirely on a voluntary basis by companies, making it seem 'underwhelming.'"

Lee Changhwan, CEO of Align Partners Asset Management, explained, "Over the past 10 years, KOSPI has been stuck in a box range, but ants who invested overseas have directly seen large profits." He added, "With the accessibility of overseas investments improved to the extent that domestic stocks can be sold and switched to overseas stocks within seconds, the attractiveness of domestic investments is significantly declining in all aspects including exchange rates and capital market conditions."

The Chief Investment Officer of domestic Pension Fund A said, "If we look coldly only from the perspective of stock market returns, it is the right direction for both individuals and institutions to go overseas." He added, "In the era of borderless investment, individuals can easily invest in various global assets through ETFs, so it will be difficult to prevent the preference for overseas investments."

Domestic Corporate Fundraising 'Emergency Situation'... Half of Investment Funds for Innovative Technologies Flow Overseas

If the hundreds of trillions of KRW in liquidity supplied by ants to the domestic stock market evaporate overseas by more than half within three years, it will trigger an emergency in fundraising for domestic companies. A senior official in the financial investment industry said, "If individual funds flow overseas, the overall market volume shrinks, and the biggest problem is that our companies will find it difficult to raise funds." He added, "The reason companies go public is to raise funds and attract investors, but if they only look at the US and do not invest in domestic stocks, the risk of failing to raise funds increases significantly, which is very concerning."

He further stated, "There must be a wide range of investors for companies to feel secure in terms of fundraising." He explained, "Although institutional investors remain, they fundamentally operate with liquidity supported by individual investors, so if individuals leave, institutions also become uneasy." This is why there is growing demand for 'pinpoint policies' to protect the rights and interests of domestic ants for K-Value-Up.