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South Korea Announces Incentives to Boost Long-Term Equity Investment and Stabilise the Won

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  Published in Stocks and Investing on Wednesday, November 19th 2025 at 4:24 GMT by reuters.com

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South Korea Aims to Boost Long‑Term Equity Investment to Stabilise the Won – A 2025 Overview

On 19 November 2025, Reuters reported that the South Korean government is preparing a suite of incentives designed to encourage domestic and foreign investors to hold equities for longer periods. The initiative, announced by the Ministry of Economy and Finance (MOEF) in collaboration with the Financial Services Commission (FSC), is aimed at reducing the volatility of the Korean won and curbing short‑term capital flows that have plagued the country’s FX market in recent years.

1. Why Long‑Term Investment Matters for the Won

South Korea’s currency has shown a pronounced tendency to swing in response to daily changes in short‑term equity positions. According to data released by the Bank of Korea (BoK) last month, the won depreciated 4.7 % against the U.S. dollar in 2024, partly driven by a surge in “tactical” trading and rapid cross‑border fund movements. Analysts argue that the lack of a stable base of long‑term equity owners magnifies speculative swings in the foreign‑exchange market.

The BoK’s chief economist, Lee Jung‑sik, told Reuters in a separate interview that “long‑term institutional ownership can serve as a stabilising anchor for the market. When funds are tied to the domestic equity market for the medium to long term, they are less likely to pull out abruptly in reaction to short‑term events.”

2. The Key Incentives on the Table

a. Tax Incentives for Long‑Term Holdings

The MOEF has drafted a bill that would reduce capital gains tax on shares held for more than three years from 20 % to 10 %. The policy would also provide a partial tax credit for dividends reinvested into qualified mutual funds or other listed securities, thereby encouraging a “buy‑and‑hold” mindset. The FSC confirmed that the bill will be tabled in the National Assembly in early 2026.

b. Reduced Corporate Tax Burden for Long‑Term Investors

Companies that attract long‑term equity investors could benefit from a temporary 1 % reduction in the corporate income tax rate. The incentive is designed to make Korean listed companies more attractive to global institutional investors who are increasingly looking for stable, tax‑efficient returns.

c. Facilitated Access to Long‑Term Investment Vehicles

The government plans to allow foreign investors to participate in Korean “long‑term equity funds” (LTEFs), a new category of pooled investment vehicles. These funds would be structured to hold equities for at least five years and would enjoy a streamlined registration process, easing the regulatory burden that currently deters foreign participation.

d. FX‑Stability Buffering Mechanisms

In conjunction with the incentive package, the BoK has signaled a willingness to deploy targeted FX interventions if the won falls below a certain threshold. The central bank will consider using its foreign‑exchange reserves to absorb shocks, thereby reducing the incentive for speculative capital outflows.

3. Contextualising the Initiative

South Korea’s FX volatility has surged in the past three years, echoing concerns that the country’s “tough regulatory reforms” have scared off long‑term investors. In a Reuters piece from March 2025, it was noted that the Korean equity market has experienced a 30 % decline in net foreign inflows since the introduction of the “foreign investment transparency” rules in 2023.

The proposed incentives respond to a broader trend in Asia, where countries such as Taiwan and Singapore are also pursuing policies to anchor long‑term capital. The Reuters article linked to the South Korean policy mentions Taiwan’s 2024 “Stable Growth” tax reform that has successfully reduced outflows and strengthened the New Taiwan Dollar (TWD).

4. Stakeholder Reactions

• Domestic Investors: Local asset managers expressed cautious optimism. Han Min‑seo, CIO of Mirae Asset, told Reuters that the tax incentives “could boost confidence, but only if the overall regulatory environment remains predictable.”

• Foreign Institutional Investors: A representative from BlackRock said that while the incentives are a step in the right direction, “we need additional safeguards against sudden regulatory changes that could still trigger liquidity issues.”

• Government Officials: Finance Minister Kwon Jong‑hee stated that “we understand the need for a stable currency, especially as the global economy remains fragile. Our policies aim to create a win‑win environment for investors and the Korean economy.”

5. Potential Impacts and Risks

a. FX Stability

If successful, the incentive package could reduce the frequency of sharp depreciations. A more stable won would lower the risk premium on Korean sovereign debt, potentially easing borrowing costs for both the government and private sector.

b. Capital Market Depth

Longer‑term investment could deepen the Korean equity market by increasing the participation of pension funds and sovereign wealth funds, both of which tend to seek enduring, steady returns.

c. Risk of “Regulatory Arbitrage”

Critics warn that tax incentives might be exploited by “swing traders” who hold stocks for slightly over the mandated period to reap tax benefits. Robust monitoring mechanisms will be required to prevent this.

d. Fiscal Implications

Lower tax rates on capital gains and corporate income could reduce government revenue, especially if the incentives significantly boost investment volumes. The MOEF has promised to offset potential losses by tightening other tax brackets or introducing a dedicated surcharge on short‑term gains.

6. Timeline and Next Steps

• Q1 2026 – Bill introduced in the National Assembly.
• Q2 2026 – BoK announces detailed FX intervention framework.
• Q3 2026 – First long‑term equity funds (LTEFs) begin registration.
• 2027 – Tax incentives phased in fully, with performance reviews every two years.

7. Looking Forward

South Korea’s attempt to reshape its capital market by rewarding long‑term investment is part of a broader narrative of financial resilience in the face of global volatility. As the country navigates its FX challenges, the proposed incentives could set a precedent for other emerging markets. Whether the strategy delivers the promised stability remains to be seen, but the policy signals a clear intent: South Korea will no longer tolerate the disruptive effects of speculative short‑term flows on its currency and economy.