Registered Investment Advisor (RIA) accounts, designed to entice domestic investors back to the Korean stock market, have amassed over 1 trillion KRW (about 675 million USD) in just one month since their inception.
The Korea Financial Investment Association reported on Thursday that the total balance of RIA accounts at domestic brokerages reached 1.0535 trillion KRW (about 711 million USD), with 164,134 accounts opened.
These accounts were launched on March 23, as a temporary measure to lure investors back to the domestic market through capital gains tax incentives.
The program allows investors to transfer overseas stocks held until December 23 of last year into these accounts. By selling these stocks and reinvesting in domestic equities for at least a year, investors can qualify for up to a 100% reduction in capital gains tax.
The scheme caps eligible overseas stock sales at 50 million KRW (about 33,800 USD) per investor. Those who return to the domestic market by late May will receive a full tax exemption, while an 80% reduction applies through July, and a 50% cut is available until year-end.
This initiative has already shown results, with domestic investors net selling U.S. stocks for the first time in ten months. The Korea Securities Depository’s SEIBro portal reports that individual investors offloaded 1.5 billion USD worth of U.S. stocks this month.
This marks a reversal from the net buying trend seen earlier this year: 5 billion USD in January, 3.9 billion USD in February, and 1.7 billion USD in March. The last time Korean investors were net sellers of U.S. stocks was in June 2022, with 200 million USD in sales.
As of Wednesday, the KOSPI index has surged 27%, outpacing the U.S. S&P 500 and Nasdaq, which gained 9% and 14% respectively. While the domestic market’s swift recovery post-conflict is a factor, analysts suggest that the RIA accounts have also been a significant catalyst.
The impact of these accounts is expected to grow as the May deadline for the 100% tax exemption approaches. Currently, the average deposit per RIA account is about 9.35 million KRW (about 6,000 USD), well below the 50 million KRW (about 33,800 USD) exemption limit, even accounting for multiple account ownership.
As U.S. markets also rebound to new highs, investors are likely to carefully time their return to the Korean market, with many eyeing the end of May as a crucial deadline.