Bloomberg has issued a strong warning, labeling South Korea's stock market as 'uninvestable.' The report highlights that government market interventions and the proliferation of single-stock leverage products have intensified volatility, undermining trust in the South Korean market, particularly among individual investors.
In a column titled 'South Korea Is Becoming Uninvestable, Too,' Bloomberg columnist Shuli Ren noted on August 3 that the KOSPI index has dropped nearly 40% after 27 trading days, a decline comparable to the 2015 crash of the Chinese stock market. Ren argued that while investors may believe in the growth of the global artificial intelligence (AI) industry, they are hesitant to invest in the South Korean stock market.
Ren cautioned against being overly optimistic about the investment appeal of Samsung Electronics and SK Hynix based solely on their potential benefits from AI and the KOSPI's 12-month forward price-to-earnings ratio (PER), which has fallen to 5.5 times. He emphasized the need to examine the recent sell-off and the government's inadequate market support measures, which have left deep scars on new investors and tarnished the reputation of the South Korean market. 'It is possible to believe in the boom of the global AI industry while avoiding investments in the KOSPI,' he stated.
Ren identified volatility as the primary concern. This year, there have been 33 days when the KOSPI moved more than 5% in a single day, while Japan's Nikkei 225 and Hong Kong's Hang Seng Index have not experienced such fluctuations. 'Volatility is deadly,' he warned, predicting that foreign institutional investors, who prioritize risk diversification, will be reluctant to increase their investments in the KOSPI.
The surge in volatility has been attributed to the introduction of single-stock leverage products at the end of May. Due to the nature of these products, additional buying occurs when stock prices rise, and additional selling happens when prices fall, amplifying market movements. Ren also criticized the failure to protect individual investors and the national pension fund's policy of increasing domestic stock investments. He pointed out that the most popular leverage product linked to SK Hynix has fallen by as much as 84% from its peak, resulting in approximately 360,000 accounts being forcibly liquidated, with 62% of those accounts belonging to investors under 35 years old.
Ren remarked, 'In recent years, global investors have deemed China an uninvestable country due to policy failures and market interventions. Now, similar concerns are growing regarding South Korea.' He urged the South Korean government to reflect on whether it understands its actions and whether young investors entering the market are being adequately protected.
* This article has been translated by AI.
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