How U.S. Stock Investment Is Different from Domestic

 Seohak Ant (individual investors in overseas stocks) is steadily increasing, leaving the domestic stock market and turning to overseas stock markets. This is because volatility in the domestic stock market is expanding due to unfavorable internal and external factors such as global austerity and the war between Russia and Ukraine. In particular, as the number of domestic individual investors investing in the U.S. stock market increased, attention was also paid to what stocks were mainly included. The industry predicts that the proportion of Seohak ants among domestic investors will increase further unless anxiety factors about the domestic stock market are calmed down in the future. I looked into the reason and report card of the Seohak ant craze.

Amid the so-called concentration of U.S. stocks by Seohak ants, there are many voices calling for careful investment after closely grasping the characteristics of the U.S. stock market and information on investment stocks. This is because the U.S. stock market operating system has a structural difference from the domestic market. 

Due to the growth of U.S. technology stocks, global quantitative easing, and expansion of investment channels by securities firms, Seohak ants' investment in U.S. stocks has recently drawn a steep upward curve. According to the Korea Securities Depository, domestic investors' payments (buying + selling) for U.S. stocks jumped about 15 times from $22.47 billion (about 27.2786 trillion won) at the end of 2018 to $3705 billion (about 449.24 trillion won) at the end of last year. The share of U.S. stocks in the total overseas stock storage amount (investment balance) increased from 47% to 87% during the same period.

First, the U.S. stock market has no limit on the range of stock price fluctuations. Unlike the domestic market, where the price fluctuation limit is applied at ±30%, there is no upper and lower limit system. As a result, stock prices can fluctuate sharply due to various market variables. In addition, due to the time difference between domestic and local, it may not be smooth for domestic investors to respond quickly from time to time. 

For example, Yandex, Russia's largest Internet company, plunged 40.3 percent to $20.32 from $34.04 on February 24, when Russia invaded Ukraine. Chinese drone development and production company Lee Hang plunged 62.7% from $124.09 to $46.30 when global investment company Wolfpack Research released a short-selling report on February 16 last year. It was a report containing claims that the sales of the port may have been manipulated and that the factory in Guangzhou in the port was not properly equipped.

Unexpected risks such as delisting and trading restrictions may be encountered. Unlike Korea, the U.S. stock market has a delisting system based on price flows. The New York Exchange (NYSE) can be delisted if the stock price is less than $1 for 30 consecutive trading days. In late February, when Russia invaded Ukraine, the sale of shares of Russian-related companies listed on the U.S. stock market, including Kiwi Yandex and Ozone Nexus, was suspended.

There is also a possibility of high-rate taxation according to the local taxation system. In Korea, the same stock dividend income tax (15.4%) is applied. However, the U.S. stock market can be taxed at a high rate of more than 30% or additional taxes depending on the type of securities. In fact, "X-Links Monthly Pay 2x Leveraged Mortgage REIT ETN," an ETN that pays twice the dividend income of a particular real estate investment trust ( REITs), is taxed at a 30% tax rate on dividend income, considering it as derivatives-linked securities, not general stocks. According to Section 871(m), the US taxation system, additional taxation is also incurred at a 15% tax rate on generated profits. Section 871(m) is a system in which non-residents in the United States impose taxes on investments in U.S. ETP (ETF, ETN) based on derivatives. It is necessary to clearly understand the local taxation system and the nature of investment stocks and invest.

"The Korea Securities Depository is doing its best to keep domestic investors' foreign currency assets stable, but information such as foreign currency securities transactions and markets needs additional confirmation from domestic securities firms," said an official at the Korea Securities Depository