South Korea’s presidential office has called in chief executives of major securities firms and asset managers to discuss ways to encourage retail investors who have moved to overseas stock markets to return, it has been confirmed.

The financial industry and financial authorities said on Tuesday that Kim Yong-bum, head of policy at the Blue House, invited executives from major securities firms and asset managers including Samsung Securities, Korea Investment & Securities, Mirae Asset Securities, Samsung Asset Management and Korea Investment Trust Management to an unofficial meeting the previous day. They discussed measures to revitalise capital markets and steps to bring investors back.

Government officials from the Financial Services Commission and the Financial Supervisory Service, as well as the Korea Capital Market Institute, also attended.

The government judges that while the domestic stock market is showing a favourable trend, including growing chances of entering the era of 5,000, it needs to further raise the market’s appeal as perceived by investors.

One government attendee explained that the meeting was held to broadly hear industry and on-the-ground views on what investors actually want and where the capital market needs attention.

Many views were reportedly raised that regulations are overly strict for high-risk leveraged ETFs, which have limited trading domestically.

A significant number of domestic investors are turning to overseas stock markets to invest in high-risk, high-leverage products that cannot be traded in South Korea, such as leveraged ETFs based on individual South Korean stocks and ETFs that track the KOSPI index at three times leverage.

With Samsung Electronics and SK Hynix, leading KOSPI stocks, repeatedly hitting record highs, domestic investors’ large funds have been flowing in after Hong Kong-based CSOP Asset Management newly listed 2-times leverage and inverse ETFs using each of the stocks as underlying assets.

Suggestions also included introducing an account dedicated to investing in domestic stocks and allowing income deductions for transactions made through that account, in addition to the swift launch of a retail investor account for returning to the domestic market, which is currently being prepared.

Other proposals included separate taxation for fund and ETF distributions, and applying tax exemptions on trading gains when buying and selling domestic equity ETFs in pension accounts.

Participants also mentioned including domestic equity funds and ETFs at a certain ratio in default options, and improving dividend payment standards.

One government official said additional measures to raise the appeal of the stock market could emerge. The official said there would be extensive review of items that are allowed overseas but not domestically.

[Yonhap]