April 19, 2024

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Lawmakers and industry experts gather on March 4 to discuss the introduction of fractional stock investing in South Korea. (By Park Ga-young/The Korea Herald)

South Korea should adopt fractional share investing in order to enhance financial inclusiveness and diversify asset portfolio of small investors still rely heavily on real estates, the head of a local fintech firm suggested on March 4.

By allowing investors to buy less than a full share, investors with a tight budget can have more chances to invest in blue-chip stocks that used to be out of their reach, Ryu Young-joon, CEO of Kakaopay said during a seminar held by Rep. Lee Kwang-jae of the Democratic Party of Korea.

“Risk distribution and asset allocation should not be exclusive to the deep pockets and long arms of the wealthy,” said Ryu, who also serves as the chairman of Korea Fintech Industry Association.

“Fractional investment will create a more even playing ground for those people with limited capital and help cultivate a habit of investment even with the spare change in one‘s pocket,” he added.

Lee Hyo-sub, head of financial industry department of Korea Capital Market Institute, said that the smaller amount of investment could help re-direct funds heading to overseas stock markets or to property markets to domestic stock markets.

Once adopted, the new method, which is currently available in countries like the US and the UK is likely to increase trading volume, the participants said. For Samsung Electronics, for instance, the stock price was 2.65 million won ($2,355) before the share split in May 2020. After the stock split, the trading volume went up by 70 percent when comparing the week prior to the stock split and the week soon after the split.

For fintech companies like Kakaopay, higher trading volume and wider investor base means a business opportunity. But the Financial Services Commission, the country’s financial regulator, meanwhile, took a cautious approach.

“FSC is gauging safe ways of adopting the fractional trading system rather than mulling adoption itself,” said Byun Je-ho, the director of Capital Market Division at FSC.

Byun said the regulator needs to consider various issues ranging from how to deal with voting rights of fractionally owned shares to how to maintain a stable real-time trading system when the trading of a portion of shares pushes up trading volumes.

Stock investment in slices is not just for financial inclusiveness, but also to innovate the local financial system and to diversify asset portfolio of small investors, Ryu and other panelists said.

“Just like the manufacturing industry, we can make our financial industry world class by trying innovative financial system like fractional stock investing,” Ryu said, adding that it might take two or three years to legalize fractional stock trading.

Noting that South Koreans focus heavily on real estate and cash, they said their portfolios need to be diversified in consideration of the ultra-low interest rate and tepid economic growth. Rep. Lee also said that despite the recent spike in stock investments, individual investors are left out due to their tight budget.

According to a 2014 study compiled by the Korea Financial Investment Association, 75 percent of the country’s households assets are pooled in real estate, much larger than the 30 percent of the US and Japan’s 40 percent.

By Park Ga-young (gypark@heraldcorp.com)