South Korea's 38% Wealth in U.S. Stocks

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A New Perspective on South Korea’s Role in U.S. Strategy

The U.S. National Security Strategy (NSS) report, released on the 5th, marked a significant shift in American security priorities. While it highlighted the need for countries like South Korea to align trade policies and increase defense spending, it also introduced an unexpected angle. South Korea was mentioned alongside Europe and Japan as a nation with substantial net foreign assets, positioning it as a potential partner in U.S. strategic investments aimed at countering China’s "Belt and Road" initiative. This recognition underscores a growing perception of South Korea as a wealthy and influential player in global economic dynamics.

South Korea’s Massive Holdings in U.S. Assets

One key factor behind this perception is South Korea’s vast holdings in U.S. stocks and bonds. According to a U.S. Department of the Treasury report from April, South Korea’s total holdings reached $687 billion as of June 2024, ranking 14th globally. Notably, its stock holdings alone amounted to $486 billion, placing it 12th worldwide and third in Asia, following Japan and Singapore. These figures represent approximately 38% of South Korea’s GDP, highlighting the country’s deep financial integration with the U.S. market.

The Rise of "Seohak Ants"

South Korea’s retail investors have played a crucial role in this trend. Known as "Seohak ants," these individual investors have increasingly taken direct positions in U.S. stocks rather than relying on funds or ETFs. Data from the Korea Securities Depository shows that individual investments in U.S. stocks reached $159.7 billion, a 42.4% increase from the previous year. The preference for U.S. stocks is overwhelming, with 94% of all overseas stock investments concentrated in the U.S.

Concentration in Tech Giants

Among the top 50 overseas stocks held by individual investors, 49 are U.S. stocks or ETFs. Tesla and NVIDIA stand out, with investments totaling $28.3 billion and $17.2 billion respectively, accounting for 28.5% of total U.S. stock investments. These investors are drawn to the high returns offered by U.S. tech companies, which have delivered impressive gains over the past five years. For instance, NVIDIA saw a staggering 1,249% return, while Microsoft and Apple delivered gains of 130–250%. Dividends and favorable exchange rates further enhance these returns.

Why Invest in the U.S.?

South Korean investors are increasingly drawn to the U.S. market due to its innovation and shareholder-friendly practices. Unlike the domestic market, where major shareholders often avoid boosting stock prices, the U.S. offers a more transparent and equitable environment. This has led many to view the U.S. market as a "heaven" for investors disillusioned with local conditions.

Historical Context of Individual Overseas Investment

South Korea’s journey into overseas stock investments began in 1993 as part of broader economic policies. Initially limited to indirect investments via funds, the rules gradually expanded, allowing direct investments up to 1 billion won. By 2006, all restrictions were lifted, facilitating greater participation from retail investors.

Unique System for Low Transaction Costs

A key factor in the growth of "Seohak ants" is South Korea’s low transaction costs. The Capital Markets Act enables centralized overseas stock settlement through the Korea Securities Depository, reducing fees to 0.25%. This system, supported by global custodians, allows for efficient and cost-effective international trading, driving the surge in retail investor activity.

Comparing South Korea and Taiwan

While South Korea faces challenges related to currency depreciation, Taiwan presents a different scenario. Despite a weak currency, Taiwan’s economy thrives, driven by export growth. However, its reliance on overseas investments exposes it to significant exchange rate risks. Both countries face similar issues but with distinct underlying causes—South Korea’s capital outflows stem from individual choices, while Taiwan’s reflect government policy.

Conclusion

South Korea’s evolving role in global economic strategies highlights its growing influence and financial strength. As the U.S. looks to counterbalance China’s initiatives, South Korea’s massive foreign assets and active retail investor base position it as a critical partner. Understanding the motivations and mechanisms behind these investments provides valuable insights into the shifting dynamics of international finance.