[Investment Shift, Y-3]② "Stock Market Without Domestic Investors?"... How to Prevent the Departure of Loyal Investors

Policy Support Needed to Prevent Offshore Outflow of Hundreds of Trillions in Private Investment Funds
Korean Stock Market and Corporate Financing, K-Value Up Is a Matter of Survival
Measures Needed to Lock in Long-Term Investments Like Retirement Pensions and ISA

Experts advise that a combination of various policies, including tax incentives to encourage long-term investment, is necessary to prevent the outflow of stock market funds from individual investors amounting to hundreds of trillions of won overseas. There is still a need for self-purification in the domestic stock market, which is dominated by theme stocks and manipulation forces, and voices are growing that the government's value-up program must not lose momentum for the survival of the Korean stock market.

Individuals More Sensitive to Taxes than Institutions... Need to Explore Ways to Encourage Long-Term Investment

The Chief Investment Officer (CIO) of Institution A explained, "Individuals are much more sensitive to tax systems than institutions," adding, "Currently, from an individual’s perspective, the expected returns from overseas investments are so high that even paying more taxes is considered more advantageous than the after-tax returns from domestic investments." He further stated, "With the implementation of the financial investment income tax next year, capital outflow will accelerate even more," and advised, "Tax reforms such as the financial investment tax are absolutely necessary, and it is essential to further expand tax-saving investment methods that can induce long-term investment, such as the Individual Savings Account (ISA)."

Above all, it is important to create an environment where funds stay longer in the stock market. For example, in the growing retirement pension market, it is worth considering ways to significantly increase the tax benefits for Individual Retirement Pensions (IRP) rather than the currently limited tax effects. This could involve raising penalties for mid-term settlements or lump-sum withdrawals. By providing a kind of long-term holding incentive, individuals are more likely to focus on long-term investment rather than short-term trading, allowing individual funds that enter the market to stay longer.

The CIO of Institution A emphasized, "Although tax incentives may burden government revenue or finances, in the long run, as the capital market grows, the tax base naturally expands, which can alleviate government fiscal issues," and stressed, "Tax policies and value-up policies must be steadily pursued over the long term, regardless of political interests."

'Era of Perfect Competition'... Protect Small Shareholders to Prevent Retail Investor Exodus

Changhwan Lee, CEO of Align Partners Asset Management, said, "With the free movement of capital, the global capital market can now be considered a perfect competition," and advised, "For the Korean stock market to survive, amendments to the Commercial Act that stipulate directors' fiduciary duties to shareholders, along with investor protection measures to safeguard small shareholders' rights in mergers and acquisitions (M&A), must be established." He added, "The vicious cycle where retail investors leave due to the lack of small shareholder protections, causing stock prices to fall and increasing corporate financing costs, must be broken."

He emphasized that laws and systems suitable for an advanced capital market must be in place so that investors can trust major shareholders and invest. Hyungkyun Kim, Head of the Special Situations Division at Cha Partners Asset Management, explained, "Simply put, proper corporate governance, the Commercial Act, and various systems must be well established so that people can invest with peace of mind domestically," adding, "If a company’s business does well, there should be a system that allows all shareholders to share the profits."

Jung Dojin, Professor of Business Administration at Chung-Ang University, said, "Fundamentally, all systems should focus on restoring the original function of the capital market," and quoted Warren Buffett, who said that if he were to die, 10% should be invested in U.S. Treasury bonds and 90% in the U.S. S&P 500 index fund. He added, "The most important thing is trust in the capital market. Investment in the Korean stock market will occur only when the capital market has the credibility to allow for 30 years of long-term investment."

Sohyun Kang, Director of the Capital Market Research Institute’s Capital Market Office, said, "This year and next year are critical periods for the domestic capital market," and emphasized, "The government’s and companies’ commitment to promoting the value-up program is very important."

Korean Stock Market Dominated by Theme Stocks and Manipulation Forces... Market Self-Purification Must Be Exercised

The Korean stock market still faces risks of speculative bubbles centered on theme stocks and unfair trading by so-called manipulation forces targeting small-cap stocks on the KOSDAQ.

Head Kim said, "In the U.S., stock prices soar the next day if a company performs well and plummet if it does not, but in Korea, prices do not move according to performance," noting, "There are cases where stock prices do not reflect earnings even after earnings announcements." Sometimes information is leaked in advance, causing stock prices to rise before earnings announcements, and when good earnings are announced, the stock hits its peak and then falls, a phenomenon known as 'peak out,' which is an abnormal market. He said, "Along with institutional improvements, self-purification of this chaotic investment culture must be achieved for money to flow into the Korean stock market," emphasizing, "Whether individual investors or pension funds, if domestic investors do not trust their own market, it cannot be sustained."