Small essay crashes Korean stocks? Korean media: Lawmakers discuss including unrealized gains from stocks and real estate in comprehensive taxation

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A policy discussion paper on incorporating unrealized gains from stocks and real estate into a comprehensive taxation system caused the already overvalued Korean stock market to crash suddenly on June 23, triggering a circuit breaker for the KOSPI, with Samsung Electronics and SK Hynix leading the decline.

According to Yonhap News Agency, on the morning of June 23, members of parliament from multiple parties, including the Democratic Party, Progressive Party, and Social Democratic Party, jointly participated in a tax system reform forum. The central claim of the forum is to promote a shift to "comprehensive income taxation"—regardless of whether assets are sold, taxation will be based on the substantive net asset appreciation, and unrealized gains from investment assets such as stocks and real estate will also be taxed.

The news quickly triggered a chain reaction in the already pressured Korean stock market. The KOSPI index closed down 10% on the day, at 8203.84 points, marking the biggest single-day decline since March 4; Samsung Electronics fell over 7%, and SK Hynix dropped by more than 10%.

This decline also resonated highly with a broader correction in Asian markets and external factors: renewed expectations for US Fed rate hikes strengthened the dollar, and previously AI-driven tech stock valuations faced systematic suppression. Whether Micron Technology's earnings report this week can boost confidence in AI demand will be the next key focal point for investors.

Tax Forum: Unrealized Gains May Be Included in Taxation System

According to Yonhap News Agency, the central topic of the forum is to shift from the current system taxing income forms to a comprehensive taxation based on economic ability—that is, regardless of asset type or whether they are realized, taxation is based on the substantial increase in net assets.

Lee Sang-min, Senior Researcher at the Korea Institute of Public Finance, pointed out that if taxation only occurs at the point of asset realization, taxpayers may have a motive to hold back from selling in order to avoid or delay paying taxes, creating a "freeze effect" and hindering capital flows to more efficient fields.

The forum also proposed a more gradual implementation path: unrealized gains would in principle be recognized as income, but tax obligations could be deferred until the realization point, or postponed with interest added; for real estate and unlisted stocks for which market price is hard to assess, the current realization-based taxation could be maintained, or pilot programs could start with high-net-worth asset holders. Korea's Labor Federation President Park Ki-san further called for the restoration of the financial investment income tax and raising the effective tax burden for ultra-high income groups by adding more tax rate brackets.

Circuit Breaker Triggered, Regulators Had Already Warned of Overheating Risks

The "taxation proposal" was only one of the reasons for the steep drop in Korean stocks on Tuesday.

Seoul Hana Securities strategist Lee Jae Mahn said there are multiple overheating signals in the Korean market—most notably SK Hynix's valuation now exceeds Samsung Electronics'. He believes that for KOSPI to climb further, Samsung Electronics' share price needs to outpace SK Hynix, and the market expects Samsung's second-quarter earnings to surpass SK Hynix.

At the same time, concerns about single leveraged ETFs have been rising among Korean financial regulators.

According to Bloomberg, Financial Supervisory Service Commissioner Lee Chan-jin said at a news conference Monday that regulators are coordinating with the Financial Services Commission and Korea Exchange to assess a series of stabilization measures, including enhanced monitoring of trading patterns, aiming to limit the contagion risk from sharp fluctuations in leveraged ETFs tracking Samsung Electronics and SK Hynix, emphasizing that related side effects are "intensifying".

External Pressure Builds, AI Boom Cools Down

Renewed US Fed rate hike expectations form another layer of external pressure, and Korean market turmoil is synchronized with a general pullback in global tech stocks.

Bank of America Chief US Economist Aditya Bhave predicted in his latest research report that the Fed will raise interest rates by 25 basis points each in September, October, and December, lifting the federal funds rate by another 75 basis points, and expects rates to remain unchanged throughout 2027. Bhave admitted that BofA's previous skepticism about the need for rate cuts was "premature", and the latest data show changes in US economic and inflation conditions. Goldman Sachs, Morgan Stanley, and Deutsche Bank have recently warned that inflation in the service sector, wage growth, and energy price volatility may slow the pace of inflation decline more than expected.

In terms of outlook, Pepperstone Group strategist Dilin Wu said Micron Technology's earnings report this week will be a real test—if Micron delivers strong results, it will directly confirm the fundamentals of Samsung Electronics and SK Hynix and reveal whether the AI hardware investment boom still has room for sustained growth. Meanwhile, market participants are closely watching whether continued declines in the share prices of tech giants like Google will squeeze their capital expenditure plans.

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