Korea's growth fund sells out in 4 days. Here's why markets care

Choi Ji-won

Retail rush comes as W150tr growth fund channels policy money into AI chips, biotech, growth stocks A sign at Woori Bank headquarters in Seoul says sales of the public participation National Growth Fund ended after the sales limit was reached on May 22, the first day of sales. (Yonhap) South Korea's National Growth Fund is drawing attention from two corners of the market: retail investors rushing into a new state-backed product and equity investors tracking where the government's bigger policy money is going.The retail-facing product almost sold out in four selling days, with 99.9 percent of its 600 billion won ($400 million) allocation taken up as of Thursday, according to the Financial Services Commission.But the retail frenzy is only the most visible piece of a much larger program. By late May, the fund had approved 16 projects worth 12.5 trillion won, sending capital toward AI chips, data centers, biotech, battery materials and semiconductor infrastructure.That is why markets are watching. The fund is part of a 150 trillion won, five-year plan to steer household savings, policy finance and private capital toward industries Korea wants to turn into its next growth engines.It also lands at a pivotal moment for the stock market. The benchmark Kospi is extending a historic rally led by chipmakers, while the tech-laden secondary Kosdaq has lagged far behind in global attention. Market watchers see the growth fund as a new catalyst for investors to look beyond the main board to Korea's smaller tech-driven and advanced-manufacturing names.What exactly is the National Growth Fund?The headline figure is 150 trillion won, the total amount the government aims to funnel over five years into advanced strategic industries such as AI, semiconductors, batteries, defense, robots and future mobility.For this year, the plan is 30 trillion won, split between public and private capital. It will flow through four channels: 3 trillion won in direct investment, 7 trillion won in indirect investment, 10 trillion won in infrastructure financing, and 10 trillion won in ultra-low-rate loans.The "public participation growth fund" is the retail-facing slice of that structure, aiming to raise 600 billion won from individual investors this year. With the government adding 120 billion won in subordinated capital, the pool totals 720 billion won.That money goes into public funds sold through banks and securities firms, then into 10 privately managed subfunds. At least 60 percent must go to strategic industries and their value chains, including exposure to unlisted and technology-special listing firms, while Kospi names can be held for stability.Where the bigger money is goingThe larger pool of policy money is already moving.By late May, the fund had approved 16 projects worth 12.5 trillion won. The list shows where Korea wants to place long-term capital first: AI chips, sovereign AI, semiconductor capacity, data centers, battery materials, bio manufacturing and renewable energy. A Rebellions AI semiconductor product is on display during a public-private meeting on the National Growth Fund's "K-Nvidia Project" in central Seoul on March 17. (Newsis) AI chips have drawn the most attention. On Thursday, the fund approved about 800 billion won in direct investment for FuriosaAI, including 370 billion won in policy funding from the Advanced Strategic Industry Fund, to support NPU mass production and next-generation AI chip development. Rebellions previously secured 250 billion won from the fund, while Upstage has been linked to a 560 billion won direct investment as part of Korea's sovereign AI push.The program also reaches Korea's larger industrial names: Samsung Electronics is receiving 2.5 trillion won in low-rate financing for its Pyeongtaek Line 5 AI semiconductor cluster, while Naver is getting 400 billion won in loans for data-center expansion and GPU server purchases.The latest approvals also added Smilegate's AI data centers, SK Bioscience's vaccine expansion and L&F Plus' battery materials.Why retailers rushed inFor ordinary investors, the appeal starts with protection.The product is not principal-guaranteed. But the 120 billion won in fiscal money is designed to absorb losses first at the subfund level, up to 20 percent of the retail investment amount. That gave the fund a safer image than a normal growth fund, even though returns still depend on the underlying investments.Tax benefits added to the appeal. Investors can receive income deductions based on investment size, while dividend income is subject to separate taxation. Market timing also helped, with AI, chips and biotech already among Korea's hottest themes.Seo Ji-yong, a business professor at Sangmyung University, said the rush was driven largely by market expectations amid the Kospi's historic rally. "Expectations for the stock market were a big factor," Seo said. "Similar state-backed products have existed before. While there may be differences, the current market frenzy seems to be driving the rush more than the policy design or fund structure itself."The trade-off is a five-year lockup, which could leave investors exposed if rates and inflation turn against growth stocks. An electronic board at a Hana Bank dealing room in Seoul shows the Kospi closing higher from the previous session, while the Kosdaq fell 3.36 percent Wednesday. (Yonhap) Why markets and global investors careFor markets, the fund matters because it shows where policy-backed capital may flow next.The Kospi has climbed nearly 90 percent this year in a historic rally led by Samsung Electronics and SK hynix as global investors buy into Korea's AI memory-chip cycle. But the Kosdaq has been a harder sell, underscoring its weaker global visibility and greater dependence on funding conditions.The Kosdaq opened Friday at 1,112, up 20 percent for the year from last year's close of 925, but still below its 52-week high of 1,229.The growth fund gives that market a new story. It could improve funding conditions for unlisted firms and Kosdaq technology companies in sectors such as biotech, AI, robotics, aerospace and advanced manufacturing.That expectation has already shown up in prices. On the fund's launch day, the Kosdaq surged about 5 percent and triggered a buy-side sidecar for a second straight session, with foreigners and institutions net buying about 600 billion won and 290 billion won, respectively.For global investors, the fund is less a product to buy than a policy map that shows where Korea wants to push long-term capital.Seo said the longer-term test is whether the fund can keep generating returns beyond the current policy momentum. "For it to be sustainable, it has to continue producing returns even after a change in administration," he said."To avoid repeating past patterns, the government should serve as a catalyst, while returns should be generated through a private-sector-led structure."