A Wall Street sign is pictured outside the New York Stock Exchange in New York, in this October 2020 photo. Reuters-Yonhap

Kim Jang-woo, 35, recently lost interest in domestic stocks. He even disposed of almost every stock he had held a few months prior. Reflecting on his five years of investing experience, Kim believes that the Korean market is a difficult place for individual investors to make significant profits.

"Engaging in short-term investments seems like the only way to see profits. I tried to follow the ups and downs for some time, but it's very tiring to do so. I am not trading cryptocurrency. I don't think I have to endure this trend," Kim said. "Those who prefer to invest for the long term, like me, can only struggle here. That's why I am looking at stocks in the U.S."

Kim said he only wants one crucial — yet difficult — thing: profits. And he has plenty of reasons to blame the Korean stock market for not being fruitful enough.

Over the past 10 years, the total returns from the domestic stock market, including dividends, have averaged just 5 percent annually, according to the Korean Corporate Governance Forum. This is almost half the returns achievable in the U.S., which stands at 13 percent, and Japan at 11 percent. Even Taiwan, which experiences similar risks to those of Korea — with them facing China and North Korea respectively, yielded higher returns at about 10 percent.

This means that if a person had invested $10,000 10 years ago, it would be worth $16,829 today. In contrast, the same investment in the U.S. stock market would have resulted in $33,946.

A group of individual investors protest the adoption of a financial investment income tax in front of the main opposition Democratic Party of Korea's office in Seoul, May 30, claiming it will only harm individual investors. The financial investment income tax imposes a 20 percent charge on the total income derived from financial products, including stocks, bonds, funds and derivatives exceeding certain amounts — 50 million won ($36,245) for stocks and 2.5 million won for other financial products. Yonhap

As a result, an increasing number of Koreans are dumping local stocks and grabbing overseas stocks instead.

This year, individual investors have sold 12.4 trillion won ($8.9 billion) on the benchmark KOSPI, and net purchased 8.5 trillion won in the U.S. stock market as of Friday. Their preferred choices were stocks related to AI and semiconductors, such as Nvidia.

Even in financial products related to the stock market, the trend was prominent.

As of April, an Individual Savings Account (ISA), a tax-advantaged account for financial products, the proportion of investments in overseas ETFs has surpassed that of domestic ETFs, for the first time since the account's introduction. The figures stood at 19.7 percent, and 7.3 percent, respectively.

"No one would invest their money in the capital market under the current structure," Mirae Asset Financial Group Executive Adviser Kim Gyung-rok said.

"If the deposit interest rate is 3 percent, people should be getting at least a 7 percent return. It's not feasible for people to invest if the capital market yields a lower rate than banks. With stock prices plummeting every time there's a missile conflict, people need compensation for the anxiety they feel."

A shareholder asks questions to board members of Samsung Electronics during a regular shareholders meeting at a convention center in Suwon, Gyeonggi Province, March 20. Courtesy of Samsung Electronics

Low shareholder returns add to the problem.

According to the Financial Services Commission, the average dividend payout ratio of domestic listed companies over the past 10 years has been 26 percent. This not only falls behind advanced economies like the U.S. at 42 percent or the U.K. at 129 percent, but also emerging markets such as China at 31 percent and India at 39 percent.

Among the 782 KOSPI-listed companies, 24 percent did not pay any dividends from 2020 to 2022.

In April, S&P Global Market Intelligence wrote that the Korean market's current dividend practices lag behind the global standard in various aspects and is one of the hurdles that need to be overcome to achieve the desired outcome of the Corporate Value-up Program.

Koreans' preference for overseas stocks has also resulted in unexpected outcomes.

The Financial Supervisory Services recently issued an alert on stock recommendations through social media. It turned out that some are exploiting the enthusiasm for overseas stock investment by encouraging others to buy certain stocks while impersonating investment moguls Peter Lynch and Jan Hatzius. Once the buying pressure drives up the stock prices, they sell off their own holdings in large quantities.