Korea Capital Market Institute

If Korea launches “foreign portfolio investment funds” sometime next year, investments up to KRW 30 million in foreign equity funds will be subject to temporary tax reliefs on capital gains (trading and valuation profits) and foreign exchange gains. Although Korea’s investments in foreign equities are currently at a low level compared to major developed countries, the demand seems to be rising with the easing of factors restraining foreign equity investments, e.g., information asymmetry, high transaction costs, expectations for a home stock market rally, and inflation hedging demand. Adopting foreign portfolio investment funds under the circumstances is expected to not only improve supply and demand conditions for foreign currencies, but also improve the long-standing slump in mutual funds as well as expand the role of Korea’s ETF market. But those outcomes are hard to be realized in the short run, requiring a long-term, persistent policy stance to encourage overseas investments. Also necessary are the asset management industry’s efforts to renew their investment behavior: Rather than concentrating on limited areas for high returns, the industry should strive for maximizing the benefits of diversification.