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South Koreans resume years-long trend of buying US stocks

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Recent markets rout unlikely to deter Korean buying of US

stocks

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Koreans hold Tesla the most, followed by Nvidia ( NVDA ) and Apple ( AAPL )

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Retail sell-off in the domestic market biggest on record

By Jihoon Lee and Cynthia Kim

SEOUL, Aug 14 (Reuters) - South Korea's mom-and-pop

investors are defying last week's global financial markets rout

by pouring even more funds into U.S. stocks, a years-long trend

that analysts and investors bet will continue due to the

depressed value proposition at home.

South Korean retailers have been scooping up Nvidia ( NVDA )

, Tesla Inc. ( TSLA ) and Apple ( AAPL ) shares this

year fuelled in part by the worldwide AI-frenzy, a move that

comes despite government efforts to boost the domestic stock

market.

Sunny Noh, a 49-year-old who has been investing in Tesla

since 2020 and now holds about 85% of his financial assets in

the electric-vehicle maker, said he sees the recent market

plunge as a long-term buying opportunity.

"It can fall in a year or two, but it will rise again in the

longer term of 10 years," he said.

Retailers like Noh have been frustrated by the so-called

"Korea discount" of lower shareholder returns and depressed

valuations in the $1.8 trillion stock market, home to global

tech titans like Samsung Electronics ( SSNLF ) and SK Hynix ( HXSCF )

and automakers such as Hyundai Motor ( HYMTF ).

For South Korean listed companies, the last 10-year ratio of

dividend payment to net income, for instance, stood at an

average of 26%, lower than 55% in Taiwan, 36% in Japan and 42%

in the U.S., according to the Financial Services Commission.

Investors are even more disappointed that Samsung and Hynix ( HXSCF )

aren't in the forefront of the AI-boom. Shares of Samsung are

down 4% so far this year versus a 120% surge for Nvidia ( NVDA ). Hynix ( HXSCF )

has fared better, up 25%.

The past 10-year price-to-book ratio for Korean companies

sits at an average of 1.04 versus 3.64 for the U.S.

These numbers partly explain why retailers, popularly known

as "ants" because of their massive 14-million number and

capacity to act as a powerful collective force, have been

investing in droves in overseas markets for well over a decade.

Ants like Noh bought $9 billion worth of U.S. stocks between

January-July this year, after selling $2.8 billion in 2023 - the

first sell-off after three years of a U.S. stock investment

boom.

They sold a record-high 16.3 trillion won ($11.9 billion)

worth of domestic stocks in the same period, driving the KOSPI

down 1.3% so far this year when the S&P 500 and

Nikkei jumped 13% and 5%, respectively.

To be sure, foreign buying of Korean stocks between

January-July also rose to a record 27 trillion won, but they

accounted for 27% of average daily turnover versus 54% for

retailers.

FALTERING AMBITIONS?

The retail-outflow trends spell trouble for the Yoon Suk

Yeol's government-driven ambitions to boost depressed stock

valuations. A planned capital gains tax, slated for next year,

is also expected to discourage investors although Yoon has

promised to scrap it.

Oh Jeong-min, a 42-year old retail investor who lost about

10%, or around 100 million won ($73,012) from his domestic and

U.S. stocks during last week's market shakeout, says he has

recouped some of the losses and plans on buying more U.S. shares

"when the time is right."

"The kind of dividend payout and shareholder return trend I

see in U.S. companies is simply hard to spot in Korea," he said.

Noh and Oh are part of a group of eight analysts, investors

and government officials who told Reuters they expect the

fund-outflows trend to continue as an ageing population seeks

higher returns.

"We are aware of the trend and the objective of the Value-up

Programme is to vitalise investment among not only retail

investors but also institutional and foreign investors by making

the domestic stock market more competitive," an official at the

Financial Services Commission said.

In February, the government proposed a "Corporate Value-up

Programme", mirroring Japan's capital market reforms, which

includes tax incentives to attract retail investors.

Many analysts say the programme will probably have only a

modest impact due to opaque governance structures of South

Korea's family-run "Chaebol" conglomerates, where controlling

families usually pass down stakes to the next generation at low

market value.

"While in Japan, the mere directive from the stock exchange

to make improvements was apparently sufficient to effect change,

it is doubtful whether government persuasion alone will be

sufficient in Korea, at least for Chaebol groups," analysts at

Mondrian Investment Partners said in a note.

In early July, Elon Musk called South Koreans "smart people"

in an X post, after data showed Tesla was the top U.S. stock

held by South Koreans. Their holdings stood at $13.6 billion as

of end-July, followed by Nvidia ( NVDA ) at $12 billion and Apple ( AAPL ) at $5.1

billion.

"South Korea has become a remarkable market in Asia, with

the size of South Koreans' investment in U.S. stocks now

exceeding Japan's," said Seungyeon Kim, CEO at Toss Securities.

Oh, the retail investor, is betting on more upside for U.S.

stocks.

"There's no doubt that as an investor, you should choose the

U.S. market if you think long-term."

($1 = 1,369.6200 won)