Individual Savings Accounts (ISA) in Korea are experiencing a surge in cancellations once the mandatory three-year holding period ends, undermining the program's original purpose as a long-term investment vehicle, data showed.
The cancellation rate for brokerage-type ISAs soared to 37% in October this year, up from just 4% in 2021, according to data from the office of Democratic Party lawmaker Min Byung-duk. The rate had risen to 18% in 2023 and 25% in 2024 before jumping sharply this year.
More than 60% of the 6.947 million ISA accounts remain empty with no deposits, a phenomenon attributed to the combination of contribution limit carryover rules and securities firms' aggressive competition to open multiple accounts.
High Exchange Rate Fuels Inflation
The won-dollar exchange rate surpassing 1,450 won pushed the November import price index up 2.6% month-on-month, marking the highest level in one year and seven months, according to data released by the Bank of Korea on December 12.
The average won-dollar exchange rate last month reached 1,457.77 won, up 2.4% from the previous month. While international crude oil prices actually declined, the weakening won has intensified import price pressures.
Rising raw material import costs have increased production burdens for small and medium-sized enterprises, while prices of daily necessities including beef (up 4.5%) and chocolate (up 5.6%) have also risen, directly impacting household budgets.
Widening Financial Regulatory Gap
The United States is accelerating financial deregulation following the launch of the Donald Trump administration, pursuing relaxation of bank capital ratios and lifting lending restrictions. The European Union and the United Kingdom have also shifted toward deregulation.
In contrast, Korea is moving in the opposite direction, with increased pressure for "shared growth" initiatives and government-directed regulations. Measures include placing National Pension Service-recommended outside directors on financial holding company boards and mobilizing banks for jeonse (lump-sum deposit lease) fraud victim support and debt relief programs, adding trillions of won in regulatory burden to the financial sector.
Battery Sector Rebounds
The secondary battery sector, which struggled throughout this year, has shown strength over the past week on expectations of industry recovery and large contract announcements.
According to Koscom ETF Check on December 12, TIGER Secondary Battery Materials Fn ETF rose 7.3% and KODEX Secondary Battery Industry Leverage ETF gained 6.0%, placing battery-related exchange-traded funds among the top performers.
LG Energy Solution (373220.KS) secured a 2 trillion won battery supply contract with Mercedes-Benz for electric vehicles, while Samsung SDI (006400.KS) signed a 2 trillion won contract to supply lithium iron phosphate (LFP) batteries for energy storage systems, boosting investor sentiment.
Analysts are calling for ISA reforms, including raising contribution limits and expanding tax exemptions to better serve the program's long-term investment objectives.