Seong Tae-yoon, Director of Policy Office, "Useful for Stabilizing the Foreign Exchange Market"
Regarding Concerns Over Short Selling Ban, "No Situation Worth Worrying About"
"Sufficient System to Eradicate Illegal Short Selling Until March Next Year"
Seong Tae-yoon, Chief of Policy at the Presidential Office, emphasized on the 13th that "it is essential to abolish the financial investment tax in order to spread the tremendous changes in the bond market following the inclusion in the World Government Bond Index (WGBI) to the stock market."
On the same day, appearing on Yonhap News TV, Chief Seong addressed concerns raised by the UK Financial Times Stock Exchange (FTSE) Russell regarding South Korea's ban on short selling as it included Korea in the WGBI, stating that "there is practically no situation to be worried about."
Chief Seong explained, "The ban on short selling in our country lasts until March next year, and we are continuously establishing institutional and systematic measures to eradicate illegal short selling. Since this can be sufficiently achieved by March next year, foreign international financial investors can also feel reassured." He added that the work to build the computerized system is being carried out almost perfectly.
He further stated, "Regarding measures to resolve the uneven playing field between institutions and individuals, as well as strengthening fines and penalties for illegal short selling and strictly institutionalizing restrictions such as suspension of account payment rights in financial investment transactions, these will be promulgated around the 15th of this month after the Cabinet meeting. If these institutional parts are completed, there will be no major problems."
He continued, "On this occasion, to stabilize the stock market institutionally, I think it is necessary to completely abolish the financial investment tax, which is currently causing uncertainty, to eliminate market instability factors and transition to an overall system that can achieve the development of the capital market."
"Long-term investment tendency brings stable capital inflow positively"
Additionally, Chief Seong highlighted the positive effects of inclusion in the WGBI. He said, "Korea's weight in the World Government Bond Index is 2.22%, which means that out of approximately $2.5 trillion in tracking funds, about $56 billion (approximately 75 trillion won) of foreign government bond investment funds will be additionally inflowed," adding, "This results in a stable inflow of capital with a long-term investment tendency."
He explained, "WGBI tracking funds are generally real demand funds with a long-term investment tendency, so they have a stable nature. When such funds come in, there is an interest rate reduction effect, significantly lowering the funding costs for the government and companies, increasing liquidity in the foreign exchange market, and helping to maintain the value of the Korean won stably."
Chief Seong said, "Typically, the way to lower interest rates is for the central bank to cut the base rate. In that case, funding costs can be lowered, but the value of the Korean won may fall, causing inflationary pressure. WGBI tracking funds are stably inflowed, lowering funding costs for companies and economic agents while stabilizing the foreign exchange market, making them very useful."
Regarding concerns about market volatility due to the expansion of foreign investment, Chief Seong said, "That is not the case at all." He explained, "Speculative parts of foreign investment funds may raise such concerns, but WGBI inclusion funds have the opposite nature," emphasizing, "They have a stable and long-term investment nature, so they rather increase liquidity in the foreign exchange market and deepen the breadth and depth of the foreign exchange and foreign capital markets."
He added, "It can be seen as the same nature as securing a large, stable reservoir where light ripples rarely occur."
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