🚨 Record High Foreign Stock Investment by Korean Investors
Today Korean Economic News for Beginners | 2025.11.05
0️⃣ $6.81B Net Buying in October, Capital Outflow Driven by Domestic Productivity Decline
📌 Heavy Investment in US AI & Big Tech...KDI Warns "0.1%p↓ in Productivity = 1.5%p↓ in GDP"
💬 Korean individual investors' net purchase of foreign stocks reached a record high of $6.81 billion (about 9.5 trillion won) in October. According to Korea Securities Depository, this is a 62% surge from the previous month ($4.2 billion), and the cumulative net purchase for this year has exceeded $47 billion, setting a new annual record. Most of the investment flowed to the US market, concentrated in AI and big tech companies like Nvidia, Tesla, and Microsoft. Meanwhile, the Korean stock market continues to struggle with foreign net selling and individual investor withdrawal. The Korea Development Institute (KDI) recently warned in a report that "if total factor productivity drops by 0.1 percentage points, GDP growth rate could decrease by 1.5 percentage points," highlighting the serious negative impact of productivity decline on the overall economy. Experts point out that behind the surge in overseas investment lies the weakening of domestic industrial competitiveness and declining investment attractiveness.
1️⃣ Easy Explanation
Korean investors are now so enthusiastic about foreign stocks, especially US stocks, that they've earned the nickname "West-learning Ants." In October alone, about 9.5 trillion won flowed overseas, the largest amount ever. But this phenomenon isn't just because "US stocks are good."
First, let me explain what "West-learning Ants" means. After COVID-19, individual investors who jumped into the Korean stock market were called "East-learning Ants" (heading east, toward Korea). But recently, they've turned west (toward the US), becoming "West-learning Ants."
Why is this happening? The biggest reason is the difference in returns. This year, the US S&P 500 index rose about 20%, but Korea's KOSPI only went up about 10%. AI-related stocks like Nvidia jumped nearly 200%. When you invest the same amount of money, US stocks have given much better returns. As investors experience this, they naturally move to the US market.
Let's use an example. Say Mr. A invests 10 million won. If he invested in Samsung Electronics, he would have made about 5% profit this year - 500,000 won. But if he put the same money in Nvidia? He could have made over 15 million won. When investors experience this kind of difference, choosing overseas investment is quite natural.
But here's the important question: "Why can't Korean companies grow as much as US companies?" This is where the problem of "productivity" is hiding.
Productivity simply means "how much can you make with the same effort?" If 100 people work and invest 10 billion won, Company A makes 1,000 products but Company B makes only 800, then Company A has higher productivity. High productivity means more profit, which leads to higher stock prices and greater investment appeal.
The problem is that Korea's productivity has been falling recently. KDI (Korea Development Institute), a government research institute, warned that "if productivity drops by just 0.1 percentage points, economic growth rate could decrease by 1.5 percentage points." Do you understand how serious this is?
Let me explain more specifically. Say Korea's GDP growth rate is 2.5%. But if productivity drops by 0.1 percentage points, the growth rate could fall sharply to 1.0%. Lower growth rates mean less company profit, fewer jobs, and eventually the entire economy could slow down.
Why is productivity falling? There are several reasons. First, there's not enough investment in innovation and technology development. Companies often stick to old ways instead of investing in new technology. Second, there are too many regulations that make it hard to try new things. Even with good ideas, many regulations prevent them from being realized. Third, the aging population is reducing the working-age population.
In this situation, how do investors behave? Naturally, they move their money to places where they can expect higher returns. That's why $6.81 billion left the country in just one month in October. For the whole year, $47 billion - about 65 trillion won - went overseas.
Here's where a bad cycle starts. Less domestic investment → companies can't invest more → productivity falls further → investment appeal drops more → more money flows overseas. This pattern has appeared in Japan before.
After Japan's real estate bubble burst in the 1990s, productivity fell sharply. Japanese investors also turned to overseas markets, and domestic investment kept declining. What was the result? A long recession called the "Lost 30 Years." Korea is now showing similar signs, which is why experts are worried.
Of course, overseas investment itself isn't bad. Catching global growth opportunities is a good strategy. The problem is the "reason." Investing because "US companies are better" is completely different from investing because "Korean companies have no answer." Unfortunately, we're closer to the latter now.
In the end, the surge in overseas investment by individual investors is a warning light showing the fundamental weakening of Korea's economic competitiveness. While chasing short-term profits is important, ensuring domestic industries regain competitiveness benefits everyone in the long run.
2️⃣ Economic Terms
📕 West-learning Ants
West-learning Ants refers to individual investors who invest in foreign stock markets like the US instead of Korean stocks.
- "West-learning" means heading west (mainly the US), the opposite concept of "East-learning Ants" who jumped into Korean stocks after COVID-19.
- Recently, individual investors attracted by high returns from US big tech and AI-related stocks have rapidly increased overseas investment.
- As of October 2025, net foreign stock purchases reached a record high of $6.81 billion.
📕 Total Factor Productivity (TFP)
Total Factor Productivity measures productivity improvement gained from technology innovation, management efficiency, and institutional improvements beyond labor and capital inputs.
- It shows how much more value can be created with the same workforce and capital.
- Higher TFP means the economy is achieving qualitative growth.
- KDI warned that if TFP drops by 0.1 percentage points, GDP growth rate could decrease by 1.5 percentage points.
📕 Net Foreign Investment
Net foreign investment is the amount domestic investors invest overseas minus the amount foreigners invest domestically.
- A positive number means capital is flowing out of the country.
- In October 2025, individuals' net foreign stock purchases reached $6.81 billion, accelerating capital outflow.
- Excessive capital outflow can lead to decreased domestic investment and reduced economic vitality.
📕 Valuation Gap
Valuation gap refers to the difference in company value assessment between domestic and foreign stock markets.
- Even for companies making similar profits, Korean companies being valued lower than US companies is called the "Korea Discount."
- Causes include productivity decline, governance issues, and geopolitical risks.
- As this gap widens, investors tend to prefer overseas investment.
3️⃣ Principles and Economic Outlook
✅ Economic Principles of Capital Movement
Capital always moves seeking higher returns, which is a natural economic phenomenon.
First, investors make rational choices to maximize risk-adjusted returns. This year, the US S&P 500 index rose 20% while KOSPI only went up about 10%. Nvidia surged over 190%, and Tesla and Microsoft also rose significantly. During the same period, Samsung Electronics only went up about 5%. For investors who experienced this return gap, heading overseas is a very rational economic choice. Especially as the AI revolution intensified, the growth potential of related companies was highlighted, accelerating capital movement.
Second, the domestic-foreign valuation gap is promoting capital outflow. This phenomenon called the "Korea Discount" means Korean companies are valued lower relative to their performance. For example, Samsung Electronics' PER (price-to-earnings ratio) is around 15, but similar US semiconductor companies trade at 25-30 times. This valuation gap stems from governance issues, dividend policies, geopolitical risks (North Korea issue), and other factors. Investors judge it more advantageous to invest in companies that get higher valuations even with similar performance.
Third, exchange rates and interest rate differences also encourage overseas investment. The US Federal Reserve kept interest rates high, making dollar deposit rates higher than Korea's. Also, as the won-dollar exchange rate stabilized around 1,350 won, concerns about exchange rate losses decreased. Rather, with dollar strength expected to continue, investors could expect currency gains on top of stock investment returns. This further increases the appeal of overseas investment.
While capital movement is a natural economic phenomenon, we must carefully examine the impact its scale and speed have on the domestic economy.
✅ The Vicious Cycle of Productivity Decline
Productivity decline isn't just a numbers problem - it creates a vicious cycle throughout the economy.
First, productivity decline directly leads to worsening corporate profitability. According to KDI's analysis, if total factor productivity drops by 0.1 percentage points, GDP growth rate decreases by 1.5 percentage points. This isn't a simple calculation but an estimate based on actual economic data. When productivity falls, companies produce fewer products at the same cost, leading to decreased sales and profits. Stock prices of companies with worsening profitability naturally don't rise, and investment appeal drops. Then investors look overseas for better opportunities.
Second, decreased investment forms a vicious cycle that further worsens productivity. When domestic investment decreases, companies lack funds for new facilities or R&D. When innovation and technology development lag behind, productivity falls further. For example, Korea's R&D investment as a percentage of GDP is among the world's highest, but its efficiency is criticized as low. This means output like patents or new product development relative to investment is insufficient - a signal that investment "quality" is declining.
Third, Japan's case warns of Korea's future. After Japan's real estate bubble burst in 1990, productivity fell sharply. Companies focused on survival rather than innovation, and investors turned overseas. The result was the "Lost Decades" - nearly 30 years of economic stagnation. Recently, Korea's per capita GDP growth rate has slowed to levels similar to Japan's, and productivity indicators are also showing a worsening trend, raising experts' concerns.
Breaking the vicious cycle of productivity decline → declining investment appeal → capital outflow → decreased investment → further productivity decline is urgent.
✅ Need and Direction for Structural Reform
To increase productivity and prevent capital flight, fundamental structural reform is necessary.
First, regulations blocking innovation must be boldly removed. Korea often faces numerous regulations when trying to start new technologies or businesses. For example, future industries like autonomous vehicles or drone delivery are difficult even to test due to regulations. In contrast, the US allowed free experimentation under certain conditions through "sandbox" systems, which became the foundation for innovation. Regulatory reform isn't just about removing regulations - it's about creating an environment that encourages new attempts.
Second, corporate governance must improve and shareholder-friendly policies must strengthen. One main cause of the Korea Discount is low dividend payout ratios and opaque governance structures. Samsung Electronics' dividend yield is about 2%, while Apple's is 0.5%. At first glance, Samsung looks better, but Apple increases shareholder value through massive share buybacks. It also has transparent governance where voting rights match economic rights. Korean companies need to improve in these directions to increase investment appeal.
Third, investment in human capital must expand. The core of productivity is ultimately people. As the working-age population decreases due to aging, maximizing the productivity of remaining workers is important. This requires lifelong education systems, vocational retraining programs, and flexible labor markets. Also important is actively attracting and utilizing foreign talent. Remember that one success factor of Silicon Valley was the gathering of excellent talent from around the world.
Structural reform is painful in the short term, but it's the only way to strengthen economic fundamentals and enable sustainable growth in the long term.
4️⃣ Conclusion
The record of $6.81 billion in foreign stock net purchases in October goes beyond a simple investment trend change - it's a warning light starkly revealing structural problems in Korea's economy.
Individual investors turning to overseas markets isn't bad in itself. Seizing global investment opportunities and diversifying portfolios is a smart choice. The problem is the "reason." If they're heading overseas not because US companies offer better opportunities, but because domestic companies' competitiveness is declining and investment appeal is disappearing, that's a serious problem.
KDI's warning is very clear. That a 0.1 percentage point drop in productivity can lead to a 1.5 percentage point decrease in GDP shows how huge the impact of productivity problems is on the overall economy. And signs are already appearing. Corporate investment is slowing, innovation is stagnating, and capital is flowing overseas.
Japan's "Lost 30 Years" isn't a distant country's story. It's a vivid example of how a vicious cycle starting with productivity decline led to long-term recession. Concerns that Korea is now walking a similar path are not exaggerations at all.
So what should we do? The answer is clear. We must increase productivity. And that must lead to concrete actions: regulatory reform, governance improvement, and human capital investment. The government must boldly remove regulations blocking innovation, companies must strengthen transparent governance and shareholder-friendly policies, and the education system must transform to nurture future talent.
Individual investors shouldn't just chase short-term profits but think about Korea's economic future from a long-term perspective. Of course, immediate returns are important. But if the economy of the country we live in collapses, eventually the damage returns to everyone.
In the end, the surge in overseas investment should be read as a "warning," not an "opportunity." If we don't create fundamental change now, in 10 years we might be following Japan's path. Change must start now, right here.
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