South Korea’s repatriation investment account (RIA) has been pulling in funds quickly a week after its launch. Demand is diverging between large brokerages and smaller firms. The securities industry launched RIA accounts on March 23 as part of the government’s measures to stabilise the exchange rate.

As of March 31, Korea Investment & Securities has topped 10,000 subscribers in three trading days after the launch, the financial investment industry said. Samsung Securities has exceeded 4,000 RIA accounts, and balances have topped 30 billion won. That implies an average inflow of about 7.5 million won per account. Mirae Asset Securities also said client interest is high, with deposits exceeding 76 billion won.

A Korea Investment & Securities official said, "The institutional purpose appears to be translating into actual money flows in the market."

RIA is an account that offers temporary capital gains tax benefits on overseas stocks if investors convert proceeds from selling overseas shares into won and make long-term investments in the domestic market. After opening the account, deposited overseas shares are sold and automatically converted into won, and the funds must be reinvested for at least 1 year in domestic stocks, domestic funds or won deposits.

If investors buy domestic stocks with proceeds from selling overseas shares, within a limit of 50 million won, and hold them for at least 1 year, they can receive a reduction in capital gains tax on overseas stocks. The reduction is 100 percent through May, 80 percent through July and 50 percent through year-end. Because the benefit declines over time, selling early is advantageous from a tax-saving perspective.

For example, if a U.S. stock bought for 20 million won rises to 50 million won, selling it through an RIA by May reduces a tax of about 6.05 million won that would be levied in a regular account to 0 won. Overseas stocks are subject to a 22 percent tax rate on profits exceeding 2.5 million won, and that portion is fully deducted.

The impact of the RIA launch is also showing up in the money flow of so-called "Seohak ants", South Korean retail investors in overseas markets.

According to the Korea Securities Depository, South Korean retail investors’ holdings of U.S. stocks stood at $152.5 billion, or about 230 trillion won, as of March 26. It has been declining after falling into the $150 billion range on March 20. This year’s peak was $173 billion, or about 261 trillion won, recorded on Jan. 27.

Total overseas stock holdings also fell to $210.4 billion, or about 318 trillion won, from a peak of $237.4 billion, or 360 trillion won, on Jan. 28. The industry is paying attention to the fact that the shift in South Korean investors’ U.S. stock holdings from around $160 billion into the $150 billion range came around the time of the RIA launch.

Dongchan Yeom (염동찬), an analyst at Korea Investment & Securities, said, "In Indonesia, which implemented a similar policy in 2016, about 12 percent of overseas assets returned to the domestic market." He added, "This policy will help support won strength."

Smaller brokerages, however, have mixed feelings about the market. Funds are flowing mainly to big firms, as the industry had feared even before the launch of RIA.

Large firms are widening the gap with smaller rivals by rolling out events offering preferential commissions and reductions in currency conversion fees, as well as cash-like benefits for transferring overseas stocks from other brokerages.

The structure in which large firms lead early momentum is also becoming entrenched, an analysis said, as they already have a thick customer base of overseas stock investors through factors such as mobile trading system market share and also have greater marketing capacity.

An official at a smaller brokerage said, "It is the reality we feared," adding, "There would not have been any smaller brokerages that had expectations from the time news of the RIA launch emerged."

An official at another smaller brokerage said, "The launch period is still short, so there are no detailed statistics or data yet," but added, "Just looking at the brokerages that have already disclosed figures, you can probably gauge the mood."