[Inside Chodong] The Political Theme Stock Frenzy: Why They Remain Silent

Amid political turmoil, a frenzy over political theme stocks is sweeping the domestic stock market. Hyeongji Global has been on a five-day consecutive limit-up streak since the 27th of last month. Its stock price surged 270%, from 2,800 won to 10,370 won. The sharp rise followed news that Lee Jae-myung, leader of the Democratic Party of Korea, was acquitted in the second trial of a public official election law violation case on the 26th of last month. Hyeongji Elite was incorporated into the political theme stocks due to its connection with the free school uniform policy promoted during Lee’s tenure as mayor of Seongnam. Hyeongji Global, an affiliate of Hyeongji Elite, also saw its stock price move in tandem, joining the ranks of theme stocks.

The Constitutional Court announced on the morning of the 1st that the impeachment trial verdict for President Yoon Seok-yeol will be delivered at 11 a.m. on the 4th, intensifying the concentration on political theme stocks. Stocks related to Kim Moon-soo, Minister of Employment and Labor, and Han Dong-hoon, former leader of the People Power Party, also surged simultaneously in the stock market.

The recurring vicious cycle whenever political uncertainty increases is no longer a matter to be ignored. Whenever news about approval ratings for specific politicians emerges or ahead of presidential elections, theme stock prices fluctuate wildly. Many individual investors fall into the temptation of buying political theme stocks, lured by the prospect of high short-term returns. Since the 17th presidential election in 2007, political theme stocks have been rampant, and numerous individual investors have experienced principal losses after investing in them.

There is no visible effort or voice of concern from the political sphere to address this issue. It does not seem that they are ignoring it due to a lack of understanding of the severity of the problem. Lee Jae-myung, who is currently leading in suitability polls for the next presidential election, showed interest in the stock market several months ago. Last November, he attended the 'Korea Stock Market Revitalization Task Force (TF) On-site Meeting' held at the Korea Exchange, where he pointed out allegations of stock price manipulation involving Sambu Construction. Lee said, "Anyone who has done a little stock trading can clearly see that this is stock price manipulation."

Even the amendment to the Commercial Act, which the Democratic Party of Korea proposed as party policy and was passed by the National Assembly on the 13th of last month under opposition leadership, shows the political sphere’s interest in protecting ordinary shareholders.

Regardless of party lines, there is a common attitude of avoiding direct involvement with political theme stocks. Why do politicians remain silent about theme stocks? The answer is simple. Warnings about political theme stocks could unsettle their support base. The status of political theme stocks reflects approval ratings. Theme stocks related to politicians close to winning elections tend to be strong. This has a positive effect on solidifying the prevailing trend. Moreover, investors who put money into political theme stocks often end up supporting the related politicians, knowingly or unknowingly. If a politician issues warnings or denies any direct connection and the stock price then plummets, investors who suffer losses may turn away. This could potentially lead to a loss of support. Ultimately, politicians, conscious of votes, tend to be passive about theme stock damage issues with unclear accountability. They prioritize their political interests over protecting individual investors.

However, the more the political theme stock frenzy repeats, the greater the distrust in the political sphere grows. Investors who buy theme stocks based on political news end up suffering huge losses due to volatility. The trust in the stock market collapses, and politics itself risks being reduced to a 'means of making money.' In this process, the silence of the political sphere becomes complicit.