South Korean retail investors are preparing to channel a record amount of capital back into the domestic stock market, seeking returns in one of the world's hottest-performing markets. This marks a shift after years of significant outflows to overseas investments. Data from the Korea Financial Investment Association shows that the cash available for stock purchases in retail investor accounts at Korean securities firms surged to a historic high of 111 trillion won (approximately $77 billion) last week before moderating slightly as funds were deployed. Concurrently, margin debt balances also reached a new peak, underscoring sustained retail trading enthusiasm. This trend indicates a change in investment focus for Korean散户 investors, who had previously favored U.S. stocks like Tesla (TSLA.US) and Palantir (PLTR.US), even as the local market began strengthening due to the artificial intelligence (AI) boom. The massive cash reserve, combined with government policies encouraging capital repatriation, is expected to provide fresh momentum for Korean equities. "The signal for capital回流 is very clear," said Uday Vikram, Co-Chief Investment Officer at Singapore-based Klay Group. "Domestic capital is re-entering with significant firepower, and this shift in flow alone can act as a persistent catalyst for gains." Year-to-date in 2026, Korea's benchmark Kospi index has soared 31%, leading global markets for a second consecutive year, while the S&P 500 has remained largely flat over the same period. In terms of net purchases, domestic institutions have been the largest buyers in this rally. South Korean President Lee Jae-myung has prioritized boosting stock market valuations and is actively working to attract local散户 investors, often referred to as the "ant tribe" for their coordinated trading activity, back to the market. A key initiative involves encouraging the public to shift funds from real estate and overseas stock markets into domestic Korean equities. Brokerages have aligned with this policy direction, engaging in fierce competition for new clients through incentives such as coffee vouchers and free iPads for opening accounts. Data from the Korea Financial Investment Association indicates these promotions are having an effect, with the number of active stock trading accounts in Korea surpassing 100 million for the first time by the end of January. "Compared to other markets, Korean households have a much higher allocation of assets to real estate than to stocks, suggesting significant potential for funds to move from property into equities," noted Sat Duhra, a portfolio manager at Janus Henderson Investors. An acceleration of such inflows could lead to increased volatility in the already highly fluctuating Korean stock market. However, the government's strong commitment to supporting the market is seen as sufficient to offset such risks. The "Reshoring Investment Account" (RIA) policy launched last month is expected to further fuel this trend. Under the new rules, investors can receive up to a 100% exemption on capital gains tax if they reinvest proceeds from selling overseas stocks into the domestic market and hold them for at least one year. Additionally, Korean regulators are preparing to approve single-stock ETFs to attract散户 investors seeking leveraged returns. While such products amplify the volatility of individual stocks, the Korean version will cap leverage at two times. Compiled data shows that Hyundai Motor has been the most favored stock among the Korean "ant tribe" this year, driven by frequent news coverage of its robotics business. It is followed by SK Hynix and Samsung Electronics, both beneficiaries of soaring memory chip prices amid the AI boom. "The Korean market is benefiting from government-led initiatives to revitalize the market and strong corporate earnings, particularly in sectors like semiconductors," commented Jason Yu, Head of Product Strategy at Samsung Asset Management. "While investors were heavily focused on the U.S. market in recent years, since late last year, the Korean stock market has begun to meet investor expectations in terms of returns and investment themes."
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