Don’t blame retail investors for buying US stocks

Many individual investors are upset about the government’s recent move to force securities firms to stop offering cash incentives and trading fee reductions for those buying U.S. and other overseas stocks.

The Financial Supervisory Service (FSS), the country’s financial watchdog, said Sunday that brokerage firms must comply with its directive to suspend all promotional events and ads for overseas stock investments through March next year, insisting this is necessary to protect retail investors amid growing market volatility. Mirae Asset, Samsung, Kiwoom, Toss and other securities firms quickly followed the order, telling customers that they no longer provide the benefits.

But nobody buys the FSS’ argument that the latest market intervention is all about protecting investors. It is clearly part of Lee Jae Myung administration’s desperate efforts to help prop up the weakening Korean won against the greenback. Finance Minister Koo Yun-cheol and other government officials have often identified investment in U.S. stocks, along with companies that keep dollar earnings abroad, as the main culprit behind the local currency’s historic depreciation against the dollar in recent months.

The won-dollar exchange rate has surged past 1,480 won this month, nearing its highest level since March 1998, during the height of the Asian financial crisis. Many expect the rate could breach the psychologically important 1,500 won level in coming days if demand for U.S. currency continues to increase. Among other adverse effects, the weaker won makes it more expensive for Korea to import crude oil and other raw materials, fueling already-high inflation.

There is no doubt that retail investors’ growing investments in U.S. stocks increase demand for the dollar because they have to convert currency to buy shares of American companies. But there are bigger causes behind the won’s depreciation.

The Korean currency has lost ground sharply since late October, when the government struck a tariff deal with the Donald Trump administration by agreeing to invest $200 billion in the world’s largest economy over the next 10 years, which will certainly hike dollar demand. Companies need U.S. currency to invest in the United States. Korean manufacturers in semiconductor, batteries and other key industries have been building plants in the US over the past few years and the pace will likely accelerate as Trump’s “America First” trade policies continue.

In addition, the Lee administration’s expansionary fiscal policies, including this year’s 13.9 trillion won cash handouts to boost sagging domestic consumption, are partly to blame because this injected additional liquidity into the local financial market. The government also jacked up the 2026 budget by 8.1 percent to 727.9 trillion won compared to this year, which will certainly put greater downward pressure on the won’s value.

Above all, market participants are betting against the domestic currency because of Korea’s deteriorating economic fundamentals. Asia’s fourth-largest economy has been losing growth momentum over the years, responding to a rapidly aging population, falling labor productivity, soaring household debt, widening economic inequality and growing dependence on a narrow set of exporters, among others. The Bank of Korea forecast its gross domestic product (GDP) will expand by mere 1 percent this year and 1.8 percent in 2026.

Even without these issues, simply blaming U.S. stock investment for the won’s depreciation doesn’t make any sense. Instead, the government should encourage retail investors to put money into domestically-listed stocks.

For the past six months, the Lee administration and the ruling Democratic Party of Korea have made a series of regulatory and legislative changes, including introducing shareholder-friendly policies to prop up local stock markets and revisions to the Commercial Act. The KOSPI has surged past the 4,000 point mark for the first time in history.

But the government still has a lot more to do.

In the eyes of retail investors, Korean stocks are still less attractive than their counterparts listed in the United States. According to a recent investor survey conducted by the Korea Chamber of Commerce and Industry, 27.7 percent of respondents said they invest in U.S. companies because of their innovation and profitability. About 34.6 percent cited Korean firms’ inability to innovate as a main factor discouraging local investments.

It is crystal clear that if the Lee administration wants to see individual investors put money into local stocks rather than take their money to the U.S., it must create a more business-friendly environment so that local firms do their best to innovate and become more profitable. The government also needs to introduce policies to make the local capital market more shareholder-friendly so that companies pay higher dividends and implement steps that help boost their stock prices.

Let’s make shares of Samsung, SK, Hyundai Motor and LG as attractive and lucrative as Nvidia, Amazon, Apple and Tesla so we don’t have to ask investors to put money into Korean stocks. They will do so on their own.

The writer is finance desk editor at The Korea Times.