Today’s News
South Korea’s individual investors are increasingly turning to U.S. stocks, defying last week’s global market turmoil. This trend highlights their preference for international markets over domestic investments, driven by the perceived lack of value in South Korea’s stock market.
Image Source: Associated Press
Retail investors have been heavily buying shares of U.S. companies like Nvidia, Tesla, and Apple this year, spurred by the global AI boom. This shift comes despite government efforts to strengthen the local stock market.
However, many South Korean investors remain frustrated with the so-called “Korea discount,” where local companies offer lower shareholder returns and suffer from undervalued stock prices.
For example, the average dividend payout ratio over the past decade for South Korean companies was 26%, significantly lower than Taiwan’s 55%, Japan’s 36%, and the U.S.’s 42%. Additionally, South Korean companies’ price-to-book ratio averaged 1.04, compared to 3.64 for U.S. companies.
Data Source: Korea Securities Depository
Image Source: Reuters
This disparity has led South Korean investors, known as “ants” for their collective strength, to pour USD 9 billion into U.S. stocks between January and July this year, after a brief sell-off in 2023. In contrast, they sold a record 16.3 trillion won (USD 11.9 billion) worth of domestic stocks during the same period, causing the KOSPI index to drop by 1.3% year-to-date, while the S&P 500 and Nikkei rose by 13% and 5%, respectively.
The ongoing trend poses a challenge to the South Korean government’s efforts to revitalize the local stock market. Despite foreign investors increasing their stakes in South Korean stocks, retail investors’ outflows are undermining these efforts.
Some analysts believe that planned capital market reforms, including tax incentives and the proposed “Corporate Value-up Programme,” may not be enough to reverse the trend, especially given the opaque governance structures of South Korea’s family-run conglomerates, or “Chaebols.”
Elon Musk recently praised South Koreans as “smart people” in a social media post, noting that Tesla is the top U.S. stock held by South Koreans, with holdings valued at USD 13.6 billion as of the end of July, followed by Nvidia and Apple.
Investors like Oh Jeong-min and Sunny Noh remain committed to U.S. markets, citing better returns and more favorable shareholder policies compared to South Korea. Despite recent market volatility, they plan to continue investing in U.S. stocks, viewing the American market as the better long-term option.
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