Financial authorities in South Korea have announced new measures to encourage domestic investment and support the won’s value. (Image courtesy of Yonhap)
SEJONG, March 10 (Korea Bizwire) — Financial authorities in South Korea have announced new measures to encourage domestic investment and support the won’s value, including raising the mandatory domestic stock investment ratio for specialized Individual Savings Accounts (ISA) and lifting restrictions on won-denominated “Kimchi bonds”.
The Ministry of Economy and Finance, Financial Services Commission, Bank of Korea, and Financial Supervisory Service unveiled these additional measures to improve foreign exchange supply and demand at a meeting chaired by First Vice Minister Kim Beomseok on March 9.
The initiatives aim to counter the increasing pressure on the won-dollar exchange rate, despite a current account surplus, largely driven by individual investors’ growing overseas stock investments. In January and February alone, Korean investors moved $10.3 billion into foreign securities.
The new measures include creating a domestic investment-focused ISA with double the tax exemption limit of regular ISAs, featuring a higher mandatory ratio for domestic stock investments than the current 40% minimum. The government is also reviving tax incentive packages to boost domestic market valuations, including a 5% corporate tax credit for increased shareholder returns and preferential tax treatment for dividend increases.
Additional changes include simplifying tax exemption application procedures for foreign investors in government bonds and implementing safety measures for overseas leveraged Exchange Traded Products (ETPs) and derivatives trading, similar to domestic products.
The government will also enhance previously announced deregulation policies. These include raising the hedging ratio limit for professional investment companies from 100% to 125% and allowing export companies to borrow domestic facility funds through overseas branches of Korean banks.
Notably, the authorities are lifting purchase restrictions on so-called Kimchi bonds (foreign currency bonds issued domestically). The authorities believe these measures will help balance foreign exchange supply and demand by encouraging more domestic investment and supporting the won’s value through increased demand for won conversion from foreign currency borrowing in the domestic bond market.
M. H. Lee (mhlee@koreabizwire.com)
