[Editorial] Hasty stimulus measures trigger retail investors in overseas stocks to exit again

Retail investors in overseas stocks (individual investors directly investing in foreign stocks) are flocking back to the U.S. stock market. According to the Korea Securities Depository, domestic investors' trading in U.S. stocks showed net sales of -$468.9 million in April and -$939.8 million in May, but turned into net purchases of $633 million in June. In July, the scale of net purchases expanded to $4.6424 billion. Even this month, net purchases have exceeded $700 million.

While it is true that the U.S. stock market has been steadily rising and attracting attention, we cannot overlook the fact that the declining credibility of the domestic market has prompted investors to turn their attention abroad. The extreme volatility of the market has instilled the perception that "the domestic stock market is difficult for long-term investment." What is particularly painful is that the government's stimulus measures aimed at revitalizing the stock market have instead eroded market confidence.

A prime example is the introduction of single-stock leveraged ETFs (exchange-traded funds) during a period of overheating in the stock market. The policy, intended to encourage retail investors in overseas stocks to return, ended up undermining investment stability. U.S. media outlet Bloomberg, in an editorial titled "South Korea Is Also Becoming an Unsuitable Investment Country," identified single-stock leveraged products as a key factor driving volatility in the Korean stock market. The British weekly magazine The Economist also compared the Korean stock market to a gambling hall, stating that leveraged products amplify sharp rises and falls in stock prices.

Policies introduced under the guise of protecting investors have also brought about adverse side effects. As companies postponed listings ahead of the implementation of guidelines on the "principle of prohibiting dual listings," the total amount raised through domestic IPOs in the first half of the year fell by 48.7% compared to the same period last year. The intention of "protecting minority shareholders" has ironically reduced the supply of high-quality companies available for minority investors to invest in.

Moreover, doubts are being raised regarding the authorities' logic that blames retail investors in overseas stocks as the main culprit behind rising exchange rates. Although net purchases by domestic investors in U.S. stocks have surged recently, the won-dollar exchange rate has remained relatively stable. It is worth reconsidering whether policies aimed at encouraging retail investors in overseas stocks to return to the domestic market were overly simplistic measures designed to resolve the weakness of the won.

Hasty stimulus measures and excessive regulations erode confidence and push away both investors and companies. What our stock market needs are not stopgap measures that fuel speculative sentiment or excessive restrictions that paralyze the primary issuance market. The way to bring retail investors in overseas stocks back is by building trust. Increasing the predictability of regulations to allow long-term capital inflows and refraining from artificial market stimulus that distorts the market are the first steps toward restoring confidence.