Individuals dump shares ahead of capital gains tax deadline

Finance

Published: 29 Dec. 2021, 17:40 Updated: 29 Dec. 2021, 18:50

Individuals dump shares ahead of capital gains tax deadline

A screen in Hana Bank's trading room in central Seoul shows the Kospi closing at 3,020.24 points on Tuesday, up 20.69 points, or 0.69 percent, from the previous trading day. Retail investors net sold 1.96-trillion-won worth of Kospi-listed company shares, but the index rose due to purchases by foreign and institutional investors. [NEWS1]

Individual investors dumped stocks in record amounts Tuesday to avoid the capital gains tax.

In total, they net sold 3.1 trillion won ($2.6 billion) that day, 1.96 trillion won of Kospi-listed shares and 1.13 trillion won of Kosdaq shares. It was the first time they net sold more than a combined 3 trillion won in a day.

The previous record was on Feb. 25, when retail investors dumped a total 2.13 trillion won of shares.

Those who are categorized as large shareholders — individuals and related parties with more than 1 billion won of a company's shares, or over 1 percent of the total shares — as of Dec. 30 must pay a capital gains tax of 20 to 30 percent on their gains next year.

It takes two days for stock sales to settle, which means people have to sell by Dec. 28

"There are more retail investors dumping to avoid being a large shareholder and paying the capital gains tax," said Daishin Securities analyst Lee Kyung-min.

Despite the massive sell-off, the Kospi rose 20.69 points, or 0.69 percent, to close at 3,020.24 the same day. The Kosdaq rose 16.08 points, or 1.59 percent, to close at 1,027.44.

Other investors picked up what individuals sold, with foreigners net buying 2.35 trillion won of both Kospi and Kosdaq companies. Institutions net purchased a combined 761.2 billion won.

Retail investors on Tuesday net sold 548 billion won of Samsung Electronics and 136.7 billion won of battery cathode material maker L&F. They net sold 133.6 billion won of SK hynix and 110.6 billion won of Celltrion.

Although the massive sell-off is an annual event to avoid taxes, this year's was bigger than last year's. Retail investors net sold 946 billion won of Kospi-listed companies on Dec. 28 last year, but net bought 902.7 billion won of Kosdaq company shares.

"People net sold more not only because of the capital gains tax, but also because retail investors have been exiting the sideways market," said Kim Hak-kyun, head of research at Shinyoung Securities.

Retail investors have been net selling for six trading days in a row since Dec. 21.

"They tend to offload shares to avoid being categorized as a large shareholder but re-invest in companies in similar industries, which will inevitably lead to a general buying trend," said Lee Kyung-soo, an analyst at Hana Financial Investment.

Many start to collect shares in January next year, but some say it could take a longer time for retail investors to return to the market.

"Some will come back, but the Korean stock market now is less attractive for investors," said Kim from Shinyoung Securities. "The market needs to move either up or down in order to change individual demand and supply, but a big change seems unlikely in a sideways market."

BY KIM YEON-JOO, LEE TAE-HEE [lee.taehee2@joongang.co.kr]