Seoul stocks nosedive on disappointment over tax reforms

Electronic signboards at Hana Bank in Seoul show the benchmark KOSPI closing at 3,119.41, Friday, down 3.88 percent from the previous trading day. The secondary Kosdaq also lost 4.03 percent to close at 772.79. Yonhap

For the first time under the Lee Jae Myung administration, both the benchmark KOSPI and the secondary Kosdaq fell by more than 3 percent on Friday, as investor sentiment took a hit due to the government's tax reform plans and lingering trade uncertainties.

According to the Korea Exchange, the KOSPI closed at 3,119.41 points, down 3.88 percent from the previous day. The index opened sharply lower, dragged down by heavy foreign and institutional selling, and failed to recover by the close.

While retail investors purchased shares totaling 1.79 trillion won ($1.2 billion), foreign and institutional investors offloaded shares worth 85.52 billion won and 1.16 trillion won, respectively.

The secondary Kosdaq closed at 772.79 points, marking a decline of 4.03 percent from the previous session.

Losses were broad-based across sectors, with nearly all stocks in the red. Among the top 20 stocks by market capitalization, only shares of Hanwha Ocean defied the trend, rising 4.54 percent from the previous day.

"Investor sentiment has been dampened by the tax reform plan, which includes tighter capital gains tax rules for major shareholders and reduced tax incentives for dividend income," said Han Ji-young, a researcher at Kiwoom Securities.

The measures announced Thursday were more restrictive than investors had anticipated, casting doubt on the administration's earlier pledges to invigorate the domestic stock market.

Among the key changes, the threshold for capital gains tax liability for major shareholders was lowered from 5 billion won to 1 billion won. In addition, a new separate taxation scheme for dividend income was introduced, with a top rate of 35 percent — significantly higher than the originally proposed 20 percent range.

"The government is likely to adjust course and ease tax burdens, taking into account market reactions and investor sentiment," Han said. "If prolonged, the current policy approach could seriously undermine the credibility of efforts to revitalize the stock market and address the so-called Korea discount."

Meanwhile, the revised tariff agreement between the U.S. and Korea introduced further uncertainties for major industries, such as the automobile sector, which had benefited from previous free trade terms.

Some analysts also noted that the sell-off reflects a technical correction following a strong rally in recent weeks.