Seoul: Amid rising volatility driven by Middle East tensions, the government has renewed its push to revitalize the stock market. President Lee Jae Myung said at a March 18 meeting on capital market stability that crises are precisely when structural reforms must be carried out, calling for efforts to address the Korea discount. Financial authorities reported plans to improve the market by banning multiple listings and expelling underperforming firms, while also strengthening transparency and investor protection measures.
According to Yonhap News Agency, the government's willingness to stabilize markets and pursue reform during a period of uncertainty is a positive signal. The benchmark KOSPI rose 5.04 percent that day, reclaiming the 5,900 level. However, it is notable that no clear warning or policy response was presented regarding the surge in speculative trading and heightened volatility seen this month. Excessive optimism without adequate safeguards risks overheating the market and amplifying price swings, particularly when short-term funds dominate trading activity.
The Financial Supervisory Service has reported that the average daily trading value of high-risk leveraged and inverse exchange-traded products reached 5.6 trillion won as of March 10, about 3.5 times higher than the same period last year. Analysts say fear of missing out has driven large inflows into these instruments, contributing to greater instability. In this context, authorities are also considering the introduction of single-stock leveraged exchange-traded funds, a move that could further increase risk exposure among retail investors and complicate market supervision.
The government's plan to boost the KOSDAQ market has already led to a concentration of funds. A wave of actively managed KOSDAQ exchange-traded funds has attracted significant inflows in a short period. Even among experts who agree that Korean equities are undervalued, many remain cautious about the KOSDAQ due to the slow pace of removing underperforming companies. The fact that capital is pouring in before these structural issues are addressed may signal emerging distortions in market pricing and resource allocation.
Developing the capital market to channel funds into productive sectors and support retirement security is an important goal. However, preventing excessive speculation is also a key responsibility for policymakers. Repeated cycles of sharp rises and declines reinforce the perception of Korean equities as risky assets, discouraging stable long-term investment and ultimately deepening the Korea discount if left unaddressed.