[why&next] KOSPI Breaks 4,700 but "U.S.-Bound" Trend Continues... Will RIA Curb the Buying Spree of Korean Investors?

Korean Investors Net $3 Trillion in U.S. Stock Purchases This Month
Top ETF for Domestic Inflows Also Tracks U.S. Market
Domestic Market Return Account (RIA) Set to Be a Key Turning Point

Although the KOSPI has been on an unstoppable upward streak this year, rising every single trading day, the much-anticipated return of Korean retail investors to the domestic market remains elusive. The amount of U.S. stocks held by domestic investors has reached an all-time high, and retail investors, burdened by the exchange rate, have flocked to U.S. index-tracking exchange-traded funds (ETFs) listed on the Korean market. Attention is now focused on whether the government's domestic market return account (RIA), set to be unveiled as early as the end of this month, can put the brakes on the exodus of Korean investors to the U.S. market.

According to the Korea Exchange on January 15, the KOSPI closed the previous day at 4,723.10, up 0.65%, breaking through the 4,700 mark for the first time in history. This marks nine consecutive trading days of gains since the beginning of the year. The year-to-date return stands at 12.08%, ranking first among major global indices.

During the same period, the returns of the three major U.S. indices have only been in the 1-2% range. Nevertheless, Korean investors' enthusiasm for U.S. stocks shows no sign of abating. According to the Korea Securities Depository's Securities Information Portal (SEIBro), as of January 13, the net purchases of U.S. stocks by domestic investors this year amounted to approximately $2.2162 billion (about 3 trillion won). This figure surpassed last month's net purchases (about $1.87384 billion) in less than two weeks. This marks seven consecutive months of net purchases since July last year. The total amount of U.S. stocks held by domestic investors has reached a record $171.3 billion (about 253 trillion won).

The most purchased U.S. stock by Korean investors in the new year has been Tesla, with net purchases totaling $451.52 million. Despite a deteriorating demand environment following the end of the U.S. electric vehicle (EV) tax credit, investor sentiment has been reignited by renewed market attention on Tesla's strengths in physical artificial intelligence (AI) fields such as robotaxis and humanoids. The ETF 'TSLL', which tracks Tesla's daily returns at twice the rate ($323.33 million), ranked second in net purchases. Alphabet A ($195.49 million) and Micron Technology ($187.8 million), both AI semiconductor-themed stocks, followed.

Retail investors who want to invest in U.S. stocks but are deterred by the high exchange rate, which is approaching 1,480 won per dollar, have turned to U.S. index-tracking ETFs listed in Korea. According to ETFCheck, the top ETF in terms of net inflows over the past month was 'TIGER US S&P500', which attracted 1.4712 trillion won. This is 55% more than 'TIGER Semiconductor TOP10', which ranked second in net inflows and has been a driving force behind the KOSPI during this period. In particular, individual investors showed significant interest in indirect investment in U.S. stocks, purchasing 884.6 billion won of 'TIGER US S&P500' (ranked first in net purchases) and 467 billion won of 'KODEX US S&P500' (ranked second in net purchases).

The government has pointed to the overseas investment boom among domestic investors as one of the factors behind the high exchange rate, and domestic securities firms are also refraining from overseas stock marketing in line with government policy. However, a swift return of Korean retail investors to the domestic market still seems unlikely. A securities firm official commented, "This persistent overseas investment boom will pose a significant challenge for the government, which is trying to both revitalize the domestic capital market and stabilize the exchange rate. Although there was a brief uptick in net selling by Korean investors returning to the domestic market following last year's announcement of tax support, it is likely that various factors, such as year-end tax settlement and profit-taking demand, played a complex role."

The RIA, set to be released between late January and early February this year, is expected to be a watershed moment in determining whether the fervor for U.S. investments will continue. The RIA is a policy focused on encouraging Korean retail investors to return to the domestic stock market. Its main feature is a capital gains tax reduction for those who sell overseas stocks (up to 50 million won) and switch to domestic stocks.

Currently, U.S. stock investors must pay a 22% capital gains tax (including local income tax) on overseas stock profits exceeding 2.5 million won. However, if they return to domestic stocks within the first quarter of this year, they will be exempt from the tax; those returning in the second quarter will receive an 80% exemption, and those returning in the second half of the year will receive a 50% exemption. The process involves opening a dedicated RIA account at a securities firm, transferring overseas stocks in kind, selling them, converting the proceeds into Korean won, and then investing in domestic assets.

Noh Donggil, a researcher at Shinhan Investment & Securities, commented, "If the government focused on institutional changes and growth finance funding plans in its first year in office, in 2026, its second year, it will shift to implementing policies such as the RIA tax benefits. While it will be necessary to analyze data to determine whether domestic investors' overseas stock investments will actually shift to the domestic market, the key point is that the overall tilt toward overseas investment could decrease."