The South Korean stock market is grappling with extreme volatility and a significant drop in trading activity. Throughout August, the KOSPI has experienced a 'rollercoaster' pattern, with sharp declines and surges occurring almost daily. Investor sentiment has cooled dramatically, leading to average daily trading volumes and values hitting their lowest levels of the year. Both foreign and domestic investors have remained on the sidelines, failing to engage in active buying, which has left the market struggling to find momentum for a rebound.
Market analysts cite several short-term factors for the recent fluctuations, including the liquidation of leveraged positions, the direction of interest rates from the U.S. Federal Reserve, and geopolitical risks stemming from the Middle East.
However, when stripping away the temporary external pressures and supply-demand imbalances, the core issue lies in the 'poor stamina' of the South Korean economy. The stock market ultimately serves as the most honest 'barometer' reflecting the current state and future value of a nation's economy.
The recent extreme instability in the stock market paradoxically highlights the limitations of South Korea's 'true stamina.' Looking back at the factors that have previously buoyed the Korean stock market, we see that short-term performance boosts from certain advanced semiconductor companies, excessive expectations regarding global monetary policy easing, and a reliance on leveraged investments have been the main pillars supporting the market.
Performance driven by the external achievements of specific sectors or artificially created liquidity cannot be sustained over the long term. The market's susceptibility to external shocks, leading to abrupt index fluctuations and a mass exit of participants, suggests that the KOSPI's anticipated breakthrough past the 10,000-point mark may be based on an artificially created 'illusion' rather than solid fundamentals.
For the market to achieve a meaningful and sustainable rebound, what is needed is not temporary stock market stimulus measures or short-term supply adjustments. The only condition that can restore confidence among long-term investors, including foreigners, is a fundamental assurance that 'the South Korean economy is on an upward trajectory based on solid fundamentals.'
Without a belief that the overall asset value of the economy will continue to rise, any market stabilization measures will inevitably be temporary fixes. If the government reacts excessively to short-term market fluctuations, it will be difficult to build trust. Ultimately, it comes down to the basics. All efforts must be focused on transforming the economic structure.
First and foremost, the industrial structure, which is overly concentrated in specific key sectors like semiconductors, must be diversified. There should be unreserved regulatory innovations and bold investment support to allow next-generation industries, which will serve as new growth engines, to thrive.
Substantial and bold institutional reforms are also necessary to resolve the 'Korea discount.' This includes enhancing the transparency of corporate governance, actively encouraging shareholder returns, and meticulously crafting legal and institutional catalysts that can modernize the capital market through reforms in inheritance and gift tax systems. When companies voluntarily enhance their value and respect shareholder interests, the capital market can transform from a short-term speculative arena into a long-term asset-building platform.
It is time to return to the basics and principles. A stock market that survives on artificial stimuli and short-term benefits ultimately leaves behind only the side effects of massive volatility. When the government demonstrates a clear growth vision and continuous structural reforms to prove a definitive upward trajectory for the South Korean economy, only then will our stock market possess the solid foundational strength to withstand external shocks.
* This article has been translated by AI.
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