Korea’s 'money move'

Peter S. Kim

As the Korean stock market roars on, approaching what seemed like the fantasy goal of KOSPI 5,000, local press is singing the power of the “money move.” The term describes the funds moving into the stock market and driving the surge. The current bull market has many drivers, including artificial intelligence (AI) and global liquidity. Market reform efforts by the Korean government have also played a large role. Most powerfully, these catalysts are receiving a turbo boost from Korean retail investors’ desperate search for alternatives to residential property as a main wealth creator.

As the KOSPI continues its spectacular rise, Korean retail investors are finally showing the kind of spirit last seen before the subprime crisis. Since the end of 2024, Korean retail customer deposits for stock trading have increased by 33 trillion won ($22.3 billion), rising to nearly 90 trillion won. This represents a 61 percent increase from the end of 2024, and the pace is accelerating.

This level of retail excitement will naturally raise concern among seasoned investors, many of whom consider Korean retail investors’ exuberance as the ultimate market peak indicator. The biggest question: Is the Korean stock market about to enter a renaissance, or is it setting itself up for another big disappointment?

Up until last year, Korean retail investors have shown a strong preference for U.S. equities over domestic stocks, but as they warm up to local stocks again, this will add rocket fuel to an already hot market. Even more promising is that current fund flows may not be a short-term phenomenon, but a sneak preview of the enormous potential from Korean households’ world-low level of financial asset holdings.

For decades, the Korean stock market has been known for its “Korea discount,” a term describing the perennially low valuations of Korean stocks relative to those of other countries. The Korean government has been steadfast in its determination to erase the discount through market reform measures aimed at making the local stock market transparent and investor-friendly. On the other hand, the Lee administration has continued to clamp down on property ownership, further making equities attractive for individuals.

But one of the daunting hurdles to making this switch is the deep-rooted speculative trading culture for Koreans at large. Korea’s lack of equity culture stems from residential property being the primary wealth creator for Koreans over the past 50 years. However, I believe the resulting overconcentration of property ownership rather than financial assets is about to reverse, making it one of the most profound trends in Korea in the coming decade. We saw a similar trend happening in Japan almost 30 years ago, as it was entering its demographic cliff, just like Korea is doing now. Compared to other countries, Korean households hold the lowest portion of their assets in financial products, including stocks. Conversely, Korean individuals have one of the highest rates of residential property ownership, far more than their neighbors from China and Japan.

Historically, the “hot money” — funds flowing from one country to another to ensure the highest short-term interest rate possible — has moved around Korea, seeking unrealistic returns even at the risk of significant downside. As a result, Korean retail investors are known for recklessly chasing growth schemes ranging from investments in China to electric vehicle batteries, cryptocurrencies and “magnificent seven” stocks. Korean retail investors have bought over $100 billion of U.S. stocks since the COVID-19 pandemic, considered to be the main cause for the current weakness of the Korean won.

The scale and speed of the hot money was ascribed to the speculative culture of Koreans and the laws banning legal gambling. When the U.S. stock market became accessible during COVID-19, it opened up a trading paradise for those who previously had scant alternatives for wealth creation. And now, armed with the convenience of trading from mobile phones, trading culture is spreading even more.

One of the biggest factors for this trend is the aggressive, even reckless, speculative mentality, which can be seen not just in stock trading but in corporate strategy, government policy and even tax laws. Through the taxation of equities, we can gauge Koreans’ underlying views on stock trading versus long-term investing. For local retail investors, capital gains taxes for stock trading are zero, while dividend income tax used to be up to 49.5 percent. Starting this year, via market reform efforts, the dividend income tax has finally been lowered to 22-33 percent, depending on the amount of annual dividend income.

The money moves we are seeing reflect the typical fast money schemes of the past, driven by the herd mentality that has defined Korean stock market history. While foreign press continues to point to the Korean government’s Corporate Value-Up Program (CVP) as one of the main reasons driving market excitement, fund flow data shows that the CVP has been a relatively minor contributor to the market upside since mid-2025. Instead, the KOSPI drivers are investments that seek immediate returns on the AI boom.

There is a risk of the current market excitement leading to the overshooting of Korean equities, which is not anchored by long-term investors. The fund flow analysis indicates that Korean retail investors are motivated by a fear of missing out rather than belief in market reform and a change in investment culture based on dividends, risk-adjusted returns and long-term “buy and hold” mentality.

I want to highlight the critical difference between “hot money” and “sticky money,” or investments that are resistant to changing market conditions. Korean retail investors have been dominated by the former, seeking immediate returns through short-term trading and placing low priority on risk-adjusted or sustainable long-term returns. For “sticky money” to anchor Korean equities, it would not necessarily rely on the AI boom, but rather be anchored in companies with strong fundamentals and corporate governance.

The inflow of funds from “hot money” is exciting and may serve the purpose of providing a much-needed income boost for an economy weighed down by tariff wars, geopolitical risks and rising unemployment. However, there is rising risk that this bull market could end before the much-needed long-term investment culture has a chance to entrench itself. Nonetheless, with global policymakers ready to step in at the smallest hints of economy slowdown (fiscal and monetary), global equities still point to a bull market for now.

Peter S. Kim is managing director and global strategist at KB Financial Group. The views expressed in this article is his own.