[The Editors' Verdict] Political Polarization, Stock Market Polarization

Just Like Politics, Investors Show Similar Patterns
Excessive Bias Leads to Financial Ruin

A senior opposition politician predicted, "Next year's general election will be fought as an organizational election." This is because the ruling party, the People Power Party, and the opposition, the Democratic Party of Korea, are locked in a life-or-death confrontation, escalating to extremes. Winning over the moderate support base is already out of the question, and the key to victory in the general election, now just seven months away, is how well each party can hold onto their absolute core supporters. From this perspective, party organizational strength has become even more crucial, and despite much talk and controversy, the positions of the two parties are actually solid, according to analysis.

Extreme confrontations are currently unfolding in the National Assembly. Especially at today's plenary session, whether the motion to arrest Representative Lee Jae-myung is passed or rejected, political turmoil and conflict are inevitable. If rejected, tensions between the ruling and opposition parties over Lee's fate are expected to intensify. If passed, the Democratic Party may face great chaos due to leadership vacuum and internal strife. Additionally, the vote on the motion to dismiss Prime Minister Han Duck-soo, and the forcible passage of the 'Yellow Envelope Act' and the 'Broadcasting Act' are also major variables in the political situation.

It is not only the political circles that are divided. (Though largely due to the political circles' lack of political skill,) the increasingly entrenched hardcore supporters of both ruling and opposition parties are polarized to extremes, as if the Red Sea has parted. The extreme polarization toward their respective camps has long been solidified.

Just as political camps have become strongly polarized, a similar extreme polarization has occurred in the domestic stock market this year. Secondary battery-related stocks are a prime example. While large-cap stocks such as semiconductors, which lead the market, have been sluggish, the growth potential of the electric vehicle market has been highlighted, and the influence of so-called 'Finfluencers' (financial influencers) like artist Park Soon-hyuk has also played a role, leading to a rapid influx of individual investors buying secondary battery stocks.

Due to the unusually strong rally by individuals, short-selling forces led by foreigners and institutions have raised the white flag. Then, as secondary battery stocks peaked and faltered, individual buying shifted to thematic stocks such as superconductors and robots. Like the ruling and opposition supporters, investors who only see what they want to see and hear what they want to hear have increased compared to before. Thanks to this, the average daily trading volume of the KOSDAQ market surpassed that of the KOSPI market for the first time in 29 years.

However, excessive bias is a shortcut to ruin. While institutional and foreign investors are hesitant, individual investors flock to thematic stocks, and the proportion of individual investors in the stock market's trading volume has exceeded 70% this month, marking the highest level this year. In particular, despite warnings from financial authorities, the scale of 'debt investment' (borrowing to invest) has remained above 20 trillion won for more than six weeks.

The problem is that while debt investment is rapidly increasing, the leading thematic stocks are changing day by day. With regulatory investigations into stock price manipulation intensifying, groups targeting individual investors' pockets are moving quickly. Given the piled-up risks such as a strong dollar, high oil prices, and instability in the Chinese economy, those who jump into thematic stocks late are likely to suffer losses.

At least the polarization in the stock market has been gradually easing since this month. The securities industry views the thematic stock-driven rotation market as nearing its end. This is because the market's resilience prevents money from flowing infinitely into one area. Although concerns about an economic recession are high, if signs of recovery in sectors like semiconductors become clear, a new phase such as a large-cap stock market could unfold. This is notably different from the political arena, where market principles hardly operate. Although politicians seeking a so-called 'third zone' are emerging one by one, it is doubtful whether the polarized and extreme political reality will truly change.