Foreign integrated account services that allow overseas retail investors to trade Korean stocks via local brokerage apps are taking off. The KOSPI is facing foreign selling pressure after a short-term surge. Even so, the market expects the service to become a channel for medium- to long-term inflows of overseas retail money.

On May 15, the financial investment industry said Samsung Securities has teamed up with global online brokerage Interactive Brokers (IBKR) to begin the service in earnest. IBKR clients can trade Korean stocks through the link with Samsung Securities without opening a separate domestic account. IBKR is a global broker that provides financial services in more than 170 markets worldwide.

A foreign integrated account is a system in which an overseas financial investment firm opens an account in its own name at a domestic securities company and processes local investors' orders for Korean stocks in a batch. Overseas investors can buy and sell Korean stocks through a local brokerage without creating a separate domestic account.

In the past, overseas retail investors needed procedures such as opening an account at a domestic securities company to buy Korean stocks. As a result, there was stronger demand for indirect investment through Korea-related exchange-traded funds (ETFs) than for individual Korean stocks. With overseas interest rising in Korean semiconductor and artificial intelligence (AI)-related companies, securities firms are also moving faster to widen direct investment channels.

Institutional improvements have also continued. The foreign investor registration system has been abolished, and the reporting cycle for investment details by the ultimate investor of the integrated-account holder has been eased to once a month from immediate reporting.

Financial authorities later pushed to revise financial investment business regulations to remove limits on who can open a foreign integrated account. As a result, the foundation has broadened for overseas brokerages and asset managers to open integrated accounts at domestic securities firms without separate regulatory exemptions.

Hana Securities is expanding the service mainly in Asia. Hana Securities began the service last year in cooperation with Hong Kong's Emperor Securities. It has also completed account opening with Japan's Capital Partners Securities and has been providing the service since this month.

Existing Hong Kong and Japan partnerships were centered on phone or branch orders, limiting their impact. If they expand to orders based on mobile trading systems (MTS), access could improve.

Meritz Securities is also preparing to launch a foreign integrated account with U.S. online stock trading platform Webull. After signing a business agreement in November last year, it signed a main contract in February this year and is targeting a year-end launch. Webull is a mobile securities company with 23 million investors in 14 countries, including the United States, Hong Kong, Singapore, Britain, Australia and Thailand.

Mirae Asset Securities, Shinhan Securities, NH Investment & Securities, KB Securities, Yuanta Securities and others are also preparing to launch related services. The Financial Services Commission said in February that seven domestic securities firms besides Hana Securities were preparing to launch integrated accounts.

Overseas retail investor interest is likely to focus first on large semiconductor stocks such as Samsung Electronics and SK Hynix. Recently, overseas investors have increasingly highlighted both the competitiveness of Korean semiconductor and AI-related companies and perceptions that they are relatively undervalued.

Cases cited as showing growing interest in Korean stocks include a Japanese retail investor's social media post verifying investment gains in SK Hynix and a Chinese investor's review of opening an account at a domestic securities firm.

Near-term supply and demand remain unstable. Foreigners have recently sold, centered on semiconductor stocks, in the KOSPI market. Many analyses see this as profit-taking after a sharp short-term rise in the KOSPI, but weakness in U.S. technology stocks and a rising won-dollar exchange rate are also burdens. Experts are leaning toward viewing the recent selling as short-term profit-taking rather than a trend break.

The market sees the foreign integrated account as a structural change that raises access to Korean stocks rather than immediately shifting flows. If procedures for overseas retail investors to buy Korean stocks become simpler, trading could first rise in large caps and then interest could spread to mid- and small-caps and KOSDAQ.

It is also cited as a positive factor in discussions on inclusion in MSCI's developed markets index. Financial authorities have been pursuing follow-up tasks for a roadmap for MSCI developed index inclusion, and have said they will identify additional improvements needed to activate foreign integrated accounts.

Whether inclusion actually happens is hard to judge based only on integrated accounts, since multiple factors such as access to the foreign exchange market, short selling, and settlement and clearing are evaluated together.

Soonho Kwon (권순호), a researcher at Daishin Securities, said that past trends show foreigners tended to net sell about 500 billion won over the following month each time the KOSPI rose an additional 1 percentage point versus major countries' stock markets over the prior three months. He said if such rebalancing pressure continues, the scale of foreign net selling could expand to about 21.5 trillion won, or as much as 35 trillion won on a conservative basis.

Kwon added that improved access to the Korean stock market for overseas investors, including the introduction of foreign integrated accounts, is a factor for medium- to long-term inflows. He said that assuming some portion of U.S. households' overseas stock investment allocation flows into the Korean market, there is room for new long-term inflows of about 30 trillion won.