The Growing Voice of Donghak Ants Shakes Even Policies

[Asia Economy Reporter Koh Hyung-kwang] The criteria for major shareholders in the stock market will remain at the current 1 billion KRW. The ruling party has stepped back and revised its policy direction due to backlash from individual investors, commonly known as 'Donghak Ants.' As the government’s policy stance is shaken by extensions of the short-selling ban and easing of capital gains tax thresholds, the influence of individual investors is growing stronger. It is being evaluated that individual investors, who were once swayed by foreigners and institutional investors, have now established themselves as a key force driving the domestic stock market.

According to the financial investment industry on the 4th, the major shareholder threshold for imposing capital gains tax on stocks will continue to be the current "1 billion KRW or more per stock." Initially, the government planned to lower the stock holding amount criterion for determining major shareholder status from the current 1 billion KRW to 300 million KRW starting next year. However, due to opposition from individual investors and concerns over worsening public opinion, the ruling party strongly pushed to maintain the major shareholder criteria as is, leading the government to ultimately concede.

Deputy Prime Minister and Minister of Strategy and Finance Hong Nam-ki explained at the National Assembly’s Planning and Finance Committee the day before, "Given the increasing global uncertainties and economic instability, it was decided through high-level party-government-civil cooperation meetings to maintain the major shareholder threshold at 1 billion KRW as it currently stands." Consequently, the 300 million KRW major shareholder taxation standard, established through the amendment of the Income Tax Act Enforcement Decree in February 2018, is effectively being discarded.

The extension of the short-selling ban until next year also stemmed from the power of the Donghak Ants. The Financial Services Commission (FSC) had fully banned short-selling in the stock market for six months until September 15th, announced in March. This was a temporary measure to stabilize the market amid the significant volatility caused by COVID-19. With less than a month remaining before the ban’s expiration at the end of August, the FSC decided to extend the short-selling ban and the limit on treasury stock acquisition for another six months. Thus, the short-selling ban on all listed stocks, originally set to end in September, was extended until March 15th of next year.

The FSC stated at the time, "The extension of the short-selling ban for six months is in line with the recent extensions of temporary financial regulatory easing measures and loan maturity extensions and interest payment deferrals, considering the prolonged COVID-19 situation." However, this move was interpreted as the government stepping back due to strong opposition from individual investors against the resumption of short-selling. Earlier, President Moon Jae-in had also expressed support for the Donghak Ants, saying, "It should not be a method that shrinks the stock market or dampens the enthusiasm of individual investors."

The capital gains tax threshold was also eased. In June, the government announced the 'Financial Tax System Advancement Plan,' stating that from 2023, a capital gains tax of up to 25% would be imposed on annual profits exceeding 20 million KRW from domestic listed stocks and equity funds. However, in the '2020 Tax Reform Bill' announced on July 22nd, this was revised to tax only profits exceeding 50 million KRW. The exemption amount was significantly increased from 20 million KRW to 50 million KRW within a month. The government’s sudden revision of the financial tax plan was due to strong opposition from individual investors. At the briefing, Deputy Prime Minister Hong said, "We will support individual investors who have sustained the stock market during these difficult times due to COVID-19 and reform the financial investment tax system to revitalize the stock market."

The financial authorities are also pursuing measures to increase the proportion of individual investors in general public subscription of IPO stocks, which currently stands at about 20%. As IPO stocks like SK Biopharm and Kakao Games, so-called 'lottery stocks,' have become popular, concerns have been raised that individuals are being excluded. Therefore, efforts are underway to devise ways for individuals to receive new shares more favorably.

As the government’s policies are repeatedly shaken, the influence of individual investors in the domestic stock market is growing stronger. Hwang Se-woon, a research fellow at the Korea Capital Market Institute, said, "The government cannot deny the significant contribution of Donghak Ants in the sharp rise of the stock market from the steep decline caused by COVID-19 in the first half of this year, and it is naturally sensitive to public opinion. It is no exaggeration to say that individual investors have now established themselves as a key force in the stock market, comparable to major players like foreigners and institutions."

This content was produced with the assistance of AI translation services.