How to Buy Korean Stocks as a Foreign Investor

Investing in the South Korean stock market offers foreign investors access to a dynamic economy. This market features globally recognized companies across various sectors. Recent regulatory changes have simplified the investment process, making it more accessible for international participants. This guide outlines the steps and considerations for foreign investors looking to buy Korean stocks.

Preparatory Steps for Foreign Investors

Before engaging with the Korean stock market, foreign investors must complete several preparatory actions. These include identification, account setup, and fund management.

Foreign Investor Identification

The requirement for a Foreign Investor Registration (FIR) certificate was abolished on December 14, 2023, streamlining market access. Foreign corporate entities can now use their Legal Entity Identifiers (LEIs), while individual foreign investors use their passport numbers for identification when opening investment accounts. Investors who previously obtained an Investment Registration Number (IRN) can continue to use it.

Non-resident foreign investors still need to appoint a standing proxy. This entity, often a global bank offering custodian services, assists with exercising shareholder rights and fulfilling local administrative requirements. The standing proxy acts on behalf of the investor, managing certain aspects of their investment within the Korean market.

A local custodian bank is also necessary to hold cash accounts for securities investments and for securities safekeeping. These banks provide services such as money transfer and security settlement. Large financial institutions, such as Kookmin Bank and Citibank Korea, are prominent providers of these custodial services.

Choosing a Brokerage Account

Foreign investors have two options for opening a brokerage account: utilizing an international broker with access to the Korean market or opening an account directly with a Korean brokerage firm. International brokers like Interactive Brokers often provide a familiar platform and broader market access. Opening an account directly with a Korean firm might offer more localized support and different fee structures.

When selecting a brokerage, investors should consider services offered, associated fees, and language support. Documents required to open an account include a valid passport or LEI. If a standing proxy is appointed, the brokerage may also require a copy of that agreement. The brokerage uses the investor’s identification to link the trading account to the cash and securities accounts held with a local custodian bank.

Funding Your Account and Currency Exchange

All investments in the Korean stock market must be denominated in Korean Won (KRW). Foreign investors need to convert their home currency into KRW to fund their brokerage accounts. While some international brokers might facilitate currency conversion, a dedicated Korean Won account with a brokerage is relatively uncommon.

Investors transfer funds to their brokerage account through a bank transfer. Currency exchange can be performed either through their home bank before transferring the KRW, or through a foreign exchange bank in Korea. Some custodian banks or larger financial institutions in Korea also offer currency exchange services. Compare exchange rates and fees across different providers for a favorable conversion.

Executing Trades and Managing Investments

Once preparatory steps are complete, foreign investors can begin trading in the Korean stock market. This involves understanding how to place orders, market hours, and settlement procedures.

Placing Buy and Sell Orders

Investors place buy and sell orders through their chosen brokerage’s platform, which may include online portals, mobile applications, or direct phone services. Two common order types are market orders and limit orders. A market order instructs the broker to execute a trade immediately at the best available current market price. This order guarantees execution but not a specific price.

A limit order allows investors to specify a maximum price for buying or a minimum price for selling. This ensures the trade is executed only at the desired price or better, but it does not guarantee the order will be filled. Conditional market orders and closing price orders are also available on the Korean exchange.

Understanding Trading Hours and Market Holidays

The Korean stock market operates Monday to Friday. Regular trading for both the KOSPI and KOSDAQ markets runs from 09:00 AM to 03:30 PM Korea Standard Time (KST). KST is UTC+09:00. Investors can place orders starting from 07:50 AM KST in the pre-market session.

Foreign investors should be aware of Korean public holidays, as the market is closed on these days. Adjusting for time zone differences is necessary to participate in market activities.

Settlement Process

Trades in the Korean stock market follow a T+2 settlement cycle. This means ownership of securities and the corresponding cash payment are exchanged two business days after the trade date. The Korea Securities Depository (KSD) facilitates the settlement of securities.

Instructions for settlement, including foreign exchange deals, are sent to custodian banks on T+1. On T+2, shares are transferred to the buyer’s account at the depository, and cash is settled between the broker and custodian bank.

Monitoring Your Investments

Investors can monitor their portfolio performance and access statements through their brokerage’s online platform or mobile application. These tools provide real-time updates on stock prices, portfolio value, and transaction history. Regular review of account statements helps investors track their holdings, dividends, and any fees incurred.

Understanding the Korean Market Environment

Foreign investors benefit from understanding the Korean market’s broader context. This includes tax implications, the structure of its exchanges, and specific regulatory nuances.

Taxation for Foreign Investors

Foreign investors in Korean stocks are subject to taxes on both capital gains and dividends. The United States-Korea Income Tax Treaty provides that capital gains from the disposition of property, such as stocks, are taxable only by the country where the seller resides.

Dividends received from Korean stocks are subject to a withholding tax. Under the US-Korea Income Tax Treaty, this withholding tax rate is limited to 15% for individuals and 10% for corporations. Investors should consult with a tax professional to understand their specific tax obligations and how the double taxation treaty applies to their individual circumstances. Tax laws can be complex and may vary based on the investor’s residency.

Market Structure and Key Indices

The Korean stock market is composed of two main exchanges: the KOSPI Market and the KOSDAQ Market. The KOSPI (Korea Composite Stock Price Index) is the main board, listing large, well-established companies and blue-chip stocks. Companies such as Samsung Electronics and Hyundai Motors are prominent listings on the KOSPI.

The KOSDAQ (Korea Securities Dealers Automated Quotations) market caters to small and medium-sized venture companies with high growth potential. It is often compared to the NASDAQ in the United States and features less rigorous listing requirements than the KOSPI. The KOSDAQ market has seen increasing participation from foreign investors.

Specific Regulations for Foreign Investors

The Korean stock market implements regulations foreign investors should note. Daily price limits are in place for stocks, restricting their movement to ±15% from the previous day’s closing price.

Short selling in the Korean market is permitted under specific conditions. Naked short selling, which involves selling shares without first borrowing them, is prohibited. Only covered short selling is allowed, meaning investors must secure the shares before executing a short sale. The market also enforces an “uptick rule,” where short-selling orders cannot be placed at or below the most recent trade price. Recent reforms, effective March 31, 2025, have standardized stock borrowing conditions for both institutional and retail investors, including a 105% cash collateral ratio and a 90-day repayment period, renewable up to 12 months.