Two worrying trends are sweeping the financial market in South Korea. First, a growing number of investors are jumping on the feverish cryptocurrency bandwagon. Second, investors tend to increase their holdings of red-hot US stocks rather than putting their money in the lackluster local stock market.

The daily trading volume of the country’s top five cryptocurrency exchanges surpassed 20 trillion won ($14.4 billion) last week, outpacing the combined 19 trillion won of the main bourse Kospi and secondary tech-heavy market Kosdaq. And the value of US stocks held by Korean investors exceeded the $100 billion mark this month, as the outflow of capital from Seoul to the US accelerated in connection with a negative outlook for the Korean economy.

The mix of the two trends illustrates an ominous situation for the Korean economy as it confronts a slew of fresh challenges, including new trade terms and the weakening of the Korean currency following the resounding victory of Donald Trump in the high-stakes US election.

But it is hard to blame local investors for exiting the Korean market to seek profits elsewhere. After all, the local cryptocurrency market has emerged as an attractive alternative investment battleground compared to the slumping local bourses. The crypto market in the US is also heating up rapidly, with bitcoin leading the charge and other cryptocurrencies competing to deliver bigger returns.

In every aspect, the Korean market stands out -- in a negative way. While the stock markets of the US, Germany, China, Hong Kong and Taiwan posted double-digit growth this year, Korea’s Kospi fell nearly 9 percent and the Kosdaq suffered a loss of more than 20 percent over the same period.

According to CoinGecko, a cryptocurrency data firm, the average daily trading volume on Korea's major cryptocurrency exchanges, such as Upbit and Bithumb, surged by a whopping 187 percent in just a week. The amount involved increased from 7 trillion won during the US election week to 21 trillion won the following week. Total deposits into crypto exchanges also soared by 2.4 trillion won over the past month.

Some experts point out that the outflow of capital is reflected in changes at the country’s five major banks. From Nov. 1-14, demand deposits at the major commercial banks dropped by over 10 trillion won. This is interpreted as a signal that investors are reallocating their funds into US equities and cryptocurrencies.

Amid heightened investor interest, the crypto exchanges reported that most of the listed currencies are shooting up, with some soaring by more than 100 percent -- a surprising result that appeals to local investors in search of bigger returns at a time when local stocks are struggling and interest rates are trending downward.

Policymakers must take the latest trend seriously and prepare proactive measures to deal with a sudden outflow of capital from the country’s financial market to its US counterpart as well as the overheating of the crypto exchanges spurred by speculation.

It is widely known that many Korean stocks trade at a discount due largely to their outdated governance structures and opaque management practices. Heavy regulations that undermine corporate and technological innovation are also cited as reasons for the “Korea discount.”

The Yoon Suk Yeol administration is now trying to dispel such negative perceptions and boost the combined value of Korean stocks. But this cannot be achieved overnight because of the complex policy and regulatory problems involved.

The rapid outflow of capital from the local financial market is a serious issue that threatens the very foundation of the Korean economy. Policymakers have to fix the related problems so that investors can rediscover the value of the local market.