KOSPI rout drives $4.6B Korean retail rush to Wall Street

Korean retail investors bought $4.6 billion of U.S. stocks in July, the most in six months, as the KOSPI slid 33% from its June peak.

"They are tired of the domestic market," Kwon Ah-min, an FX analyst at NH Investment Securities in Seoul, said.

The purchases surpassed buying of domestic shares for the first time since February, according to Korea Securities Depository data, and topped the $2.7 billion monthly average for 2025. Samsung Electronics and SK Hynix drove 76% of the KOSPI's 2,257.8 trillion won ($1.59 trillion) wipeout in market value as concerns mounted over the durability of AI spending and competition from Chinese rivals.

The reversal threatens to revive a years-old pattern of retail savings flowing overseas, acting as a drag on the won and frustrating policymakers who introduced tax breaks to lure investors home.

Homecoming drive unravels

For a few heady months, the government's push appeared to work. Retail money poured into the soaring KOSPI, encouraged by the AI boom and a tax sweetener for investors who sold overseas shares to buy local stocks. Deposits in domestic stock trading accounts hit a record 140 trillion won in early June.

The bruising selloff torched that patience. Deposits fell to 102.8 trillion won as of Monday, the lowest since mid-February, according to Korea Financial Investment Association data. Retail deposits in the so-called Re-shoring Investment Accounts, introduced in March to offer tax incentives, recorded their first monthly decline in July.

Won strength adds to the pull

A stronger won has also encouraged investing abroad. The currency jumped 8% in July to a nine-month high, its best monthly gain since November 2022, propelled by chipmaker SK Hynix raising $26.5 billion and repatriating part of the proceeds. A firmer won lowers the incentive to bring overseas investments home and can spur fresh foreign asset purchases.

The shift is visible in August. Retail investors have bought a net $278 million of overseas equities as Wall Street reaches fresh highs while the KOSPI remains volatile. Some money is flowing into funds holding Korean assets, including $319 million invested last month in the Direxion Daily MSCI South Korea Bull 3X ETF, but larger sums are heading into U.S. stocks.

"If Korean equities continue to lag their US counterparts, we worry that domestic retail outflows could re-emerge," Bank of America analysts said in a note. "In other words, the path is very narrow to have a benign portfolio flow dynamics that would support sustained KRW appreciation."

The KOSPI's slide has also exposed the limits of the National Pension Service as a market backstop. The fund, the world's third-largest pension, expanded its domestic equity holdings to 543.6 trillion won by the end of May, more than double the level at the end of last year, leaving it little room to buy when the index tumbled. Retail investors absorbed much of the pain, net purchasing 5.37 trillion won in July while foreign investors sold 9.89 trillion won.

This article is for informational purposes only and does not constitute investment advice.