Korean Retail Investors Pull Out of U.S. Stocks: "More Bond Investments, Return to Domestic Market"

Background and Implications of the Recent Slowdown in U.S. Stock Investments by Korean Residents

As Korean retail investors continued to sell, overseas stock investments by domestic residents recorded net withdrawals for the second consecutive month. This trend was driven by an increase in bond investments over stocks and a return of funds to the domestic stock market. The Bank of Korea projected that this trend is likely to continue for the time being.

According to the Bank of Korea's report released on the 17th, titled "Background and Implications of the Recent Slowdown in U.S. Stock Investments by Residents," individual overseas stock investments saw a net withdrawal of $1,294.95 million as of May this year. This means that the amount sold and withdrawn exceeded the amount newly invested. It has been seven months since individual overseas stock investments turned to net withdrawals, the last time being in October of the previous year. In June, there was also a net withdrawal of $394.43 million, continuing the selling trend. Institutional investors also saw a peak in net investment in February, followed by a slowdown for three consecutive months.

The Bank of Korea analyzed that the slowdown in overseas stock investments, particularly in the United States, was largely due to a shift in residents' investment products from stocks to bonds. In May, residents' bond investments reached $6.5 billion, marking the highest monthly level. The proportion of bond investments also surged from an average of 42% last year to 88% in May of this year.

The report stated, "Amid continued expectations for a rate cut by the U.S. Federal Reserve, bond prices fell sharply, leading to increased bargain buying. The high valuation of stocks and the rise in bond investment returns compared to stocks also contributed to this trend."

It was found that institutional investors increased their stock investments in regions outside the United States. In particular, following the inauguration of the new government, heightened policy expectations led domestic institutional investors to return to undervalued domestic stocks. Within overseas stocks, investment funds are also moving to countries other than the United States, where positive earnings outlooks and currency appreciation are anticipated.

The Bank of Korea expects this investment trend to continue for the time being. The report stated, "Given U.S. tariff policies and geopolitical risks, as well as expectations for new government policies in Korea, the preference for bonds and the repatriation of investment funds to the domestic market may persist. However, considering the size and status of the U.S. stock market, it is realistically difficult for other regions to replace it, so the possibility of this trend continuing on a large scale and for a long period is limited."