Volatility in Korea's stock market is reaching extreme levels, with circuit breakers triggered on both the main bourse and the tech-heavy Kosdaq for two consecutive days for the first time ever. On the 29th, both the Kospi and the Kosdaq plunged more than 8% intraday, triggering circuit breakers. The previous day, the Kospi and the Kosdaq had also fallen intraday by 11% and in the 8% range, respectively, activating circuit breakers. The Kospi circuit breaker on this day was the 15th in history and the ninth this year alone. For the Kosdaq, it was the 14th ever and the fourth this year. The Korean stock market, saddled with the "Roller-Kospi" nickname — a combination of roller coaster and Kospi — is drawing criticism for having degenerated into a gambling den.
Policy bureaucrats bear much of the responsibility for the surge in volatility in Korea's stock market, which has grown to a degree unmatched anywhere in the world. Of course, the direct trigger for the plunge in stock prices can be seen in China's rise in memory semiconductors as it rapidly chases Korea, the crisis in the Middle East, and the theory of an artificial intelligence (AI) bubble. However, given that the index declines in Japan and Taiwan amounted to less than half of Korea's despite the same external shocks, one cannot avoid pointing to the "policy failure" of our government. Financial authorities let experts' concerns and warnings go in one ear and out the other, and hastily launched leveraged exchange-traded funds (ETFs) tracking twice the individual stock prices of Samsung Electronics and SK hynix, which only amplified volatility instead. The National Pension Service drew criticism for excessively raising its share of domestic stock holdings, even by changing its internal rules. The ruling party and the government promoted rising stock prices as if they were a report card of the administration, and individual investors who believed in "stocks never fail" joined the ranks of debt-fueled and all-in investing.
Even after such a mess, Kim Yong-beom, chief of the Presidential Office of Policy, made responsibility-dodging remarks on this day, saying, "It is not appropriate to attribute all the problems of the recent stock price decline to leveraged ETFs." This differed in tone from Financial Services Commission Chairman Lee Eok-won and Financial Supervisory Service Governor Lee Chan-jin, who bowed their heads at the National Assembly's National Policy Committee regarding leveraged ETFs, saying, "We take the part where market volatility has greatly expanded very seriously, and our responsibility is naturally heavy." What matters is the will and execution of the policy authorities to correct the policy failure. Stopgap measures at the level of raising the basic deposit for leveraged ETFs from the existing 10 million won to 30 million won and extending mandatory education hours will not be nearly enough. It is time to urgently present more refined ETF supplementary measures and to seek ways to fundamentally improve the constitution of the stock market by introducing a system that favors long-term investment.
