[Reporter’s Notebook] Time to Restore Korean Investors’ Confidence in the Domestic Stock Market

Since the beginning of the year, Korean individual investors investing in overseas stocks have once again been buying U.S. equities. The government has announced plans to introduce the Return Investment Account (RIA) to encourage overseas funds to flow back into the domestic market, yet investors’ attention remains fixed on the U.S. stock market. After the policy was unveiled, there was some year-end selling for profit-taking and to wait on the sidelines, but with the new year, net buying has resumed. The stance of “waiting to see how the system is designed” proved temporary, and investment decisions are once again being driven primarily by returns.
The RIA is a policy crafted with foreign-exchange market stability in mind. The idea is that if individual investors holding dollar-denominated assets sell their overseas stocks and bring the funds back into the domestic market, it will help stabilize the exchange rate while invigorating the capital market. The tax benefit based on 50 million won in sale proceeds and the use of time‐differentiated tax reductions both reveal an intention to quickly improve foreign-exchange supply and demand. The policy’s purpose is clear.
However, investors reach for their calculators before they consider policy intentions. The maximum tax savings available through the RIA are around 10 million won. By contrast, the returns they expect from the U.S. stock market are not limited to the short term. With optimism over artificial intelligence and big tech growth still strong, it is only natural that, from an investor’s perspective, the potential for medium- to long-term gains matters more than saving a few million won in taxes.
There are also considerable concerns about how the system is structured. Because investors can sell overseas stocks through an RIA and then repurchase overseas stocks in another account, some point out that the actual scale of overseas investment may not decline at all. In other words, contrary to the system’s intent, it may end up being used merely as a tax-saving tool. On top of that, the policy still requires an amendment to the Restriction of Special Taxation Act, leaving both the timing and the exact form of implementation uncertain.
Even so, it is premature to dismiss the RIA as a policy doomed to fail. Last year, the South Korean stock market outperformed the U.S. stock market, and it is encouraging that the government and ruling party are genuinely pushing ahead with amendments to the Commercial Act of the Republic of Korea and improvements to capital market regulations. If this momentum continues, investor confidence can gradually be restored. That confidence, however, cannot be built on tax incentives alone.
What ultimately shifts investors’ direction has always been returns and trust. Policy can support that judgment, but it cannot replace it. The success or failure of the RIA will depend less on when the accounts are launched or what the tax reduction rate is, and more on whether it can convince investors that the South Korean stock market is once again a place worth betting on. With exchange-rate stability still a pressing task, narrowing the gap between the government and the market remains very much a work in progress.
koreanbae@fnnews.com Bae Han-geul Reporter