[Initial Perspective] KOSPI 3000 Era, Political Empowerment of Donghak Ants

[Image source=Yonhap News]

[Asia Economy Reporter Ji Yeon-jin] The stock market has been hot since the beginning of the new year. The KOSPI, which was at 2873.47 at the end of last year, sharply rose from the start of the year, surpassing 3000 on the 8th of this month and exceeding 3200 on the 25th. Due to the COVID-19 pandemic, the stock market crashed dramatically in March last year, causing the KOSPI to fall below the 1600 level, but less than a year later, the first-ever "KOSPI 3000 era" has opened. This is thanks to individual investors, known as "Donghak Ants," flocking to the stock market.

The Donghak Ants, who have supported the domestic stock market, have now emerged as a powerful political force. Following the extension of the short-selling ban in August last year, they succeeded in raising the financial tax exemption limit and thwarted the plan to lower the major shareholder threshold to 300 million KRW. Ahead of the resumption of short-selling scheduled for March, they are voicing strong opposition and appear ready to push for another extension.

The problem is that the political sphere is using the extension of the short-selling ban as a campaign issue ahead of the April by-elections. Seoul mayoral candidates are competing to oppose the resumption of short-selling, citing the lack of institutional improvements. Even Prime Minister Chung Sye-kyun has demanded an extension, stating that "resuming short-selling without institutional improvements is undesirable."

The financial authorities, who will decide on the resumption of short-selling, seem to be cautious of the political sphere and individual investors. Earlier this month, Financial Services Commission Chairman Eun Sung-soo, who had declared the resumption of short-selling in March, took a reserved stance, saying, "We expect to decide on the resumption of short-selling in February, but it has not been finalized yet." The market is leaning toward the possibility of an extension of the short-selling ban.

When the financial authorities decided to extend the short-selling ban again in August last year, they cited institutional improvements as the reason. Since then, the Capital Market Act amendment, which strengthens penalties for illegal short-selling, passed the National Assembly in December last year and is about to be implemented. The Korea Exchange has also prepared for the resumption of short-selling by establishing a special inspection team dedicated to monitoring short-selling. This indicates that some improvements have been made to the short-selling system.

The ruling party, which won a landslide victory in last year's general election, has seen its approval ratings drop significantly due to the skyrocketing real estate prices in the metropolitan area, various sexual misconduct scandals involving local government heads, and the so-called "Prosecutor Crisis" surrounding the disciplinary action against Prosecutor General Yoon Seok-youl. There is a prevailing view that the additional extension of the short-selling ban is not a time-buying measure for institutional improvements but a move by the government and ruling party to prevent voter defection in the April by-elections. A petition titled "We petition for the permanent ban on short-selling" on the Cheongwadae National Petition website has garnered 190,000 signatures. The petition warns, "If short-selling is revived, this government and the Democratic Party will face an unimaginable backlash worse than any policy they have implemented," and "They will be judged by the people."

"KOSPI 3000, the thousand-point era." The Korean stock market is treading an unprecedented path in history. The recent surge in stock investment by individual investors is rooted in the relative deprivation caused by the continuous rise in real estate prices over recent years. The "lightning poverty" experienced in the real estate market has shifted to the stock market, creating a sense of urgency that if one does not invest in stocks during the sharp rise, they will be left behind. Moreover, as low interest rates continue, among the digitally savvy generation who quickly acquire information, the method of growing money through the stock market will remain effective.

However, stock prices cannot rise indefinitely. Stocks traded at prices higher than their actual value will eventually find their proper place. Short-selling functions to bring down soaring stock prices to levels that correspond to their actual value. A stable market is more attractive than making several times the profit immediately.