South Korea's financial authorities are moving to allow foreign investors to trade domestic exchange-traded funds (ETFs) directly, a step that could channel significantly more overseas capital into Korean assets as the benchmark KOSPI continues a record-setting run, according to sources familiar with the matter.

The KOSPI Rally in Context

The KOSPI has emerged as one of the world's top-performing equity indexes this year, surging 82% — from 4,309.63 on the first trading session of the year to 7,847.71 at Friday's close. The rally has been powered largely by outsized gains in Samsung Electronics Co. and SK Hynix Inc., both of which have benefited from the global artificial intelligence investment boom.

What the Regulators Are Planning

The Financial Services Commission (FSC) is currently seeking revisions to investment business regulations that would permit foreign nationals to invest directly in locally listed ETFs. According to sources, the FSC plans to issue a prior notice as early as next month. FSC Chairman Lee Eog-weon confirmed last week that his agency would revise rules to allow offshore retail investors to buy and sell ETFs through omnibus accounts — a mechanism that lets them trade Korean stocks without the need to open separate accounts with Korean brokerages.

An ETF is an investment fund traded on a stock exchange that holds a basket of stocks, commodities, and bonds, typically tracking an index.

What Officials Say

'If we open more doors for foreigners to enter the South Korean financial market, demand for South Korean assets will rise, bringing more U.S. dollars into the country,' a financial authority official said.

Key Conditions and Timeline

Analysts note that the measure's rollout hinges on a key unresolved issue: withholding tax treatment for foreign ETF investors. If the FSC and the finance ministry reach agreement on that question, the reform could be introduced in the second half of this year, after brokerages complete the necessary overhaul of their trading systems.

Separately, South Korean stocks closed mildly higher on Friday, extending gains for a second consecutive session, buoyed by rising hopes for a diplomatic resolution to the US-Iran conflict, though the South Korean won lost ground against the US dollar.

What This Means for Investors

Direct ETF access would lower the barrier to entry for foreign retail and institutional investors, removing the administrative friction of opening dedicated brokerage accounts in Korea. This comes amid sustained global interest in AI-linked semiconductor plays — where Korean firms hold a commanding position — making the timing of the reform particularly significant. If implemented, the move could deepen liquidity in the Korean ETF market and further reinforce the KOSPI's momentum heading into the second half of the year.