As the 21st presidential election approaches, political theme stocks are surging, prompting the Korea Exchange to issue a warning to raise investor awareness.
On April 23, the Market Surveillance Committee of the Korea Exchange stated, "With the 21st presidential election set for June 3, the overheating of political theme stocks has become increasingly apparent," and added, "We aim to prevent investment losses related to abnormal surges in political theme stocks and to alert investors to exercise caution."
The view of the Korea Exchange building in Yeouido.
As the Exchange pointed out, following the Constitutional Court's decision to uphold the impeachment, the share prices of stocks related to both ruling and opposition presidential candidates have been experiencing repeated sharp fluctuations. From December of last year through April 18, among the 115 stocks that received market warnings of 'Investment Caution' or higher, approximately 52% (60 stocks) were classified as political theme stocks. In April (from April 1 to 18), the trend has intensified, with 78% (29 out of 37 stocks) designated as 'Investment Caution' or higher being political theme stocks.
Since December of last year, the price volatility of political theme stocks has reached 121.81%, exceeding the market averages?KOSPI at 16.47% and KOSDAQ at 24.12%?by about six times, underscoring the need for heightened investor caution.
The Exchange pointed out, "Companies classified as political theme stocks are mainly small- and mid-cap stocks with asset and revenue sizes below the market average," and added, "A significant number of these stocks also have business performance that is considerably lower than the market average." The average revenue of political theme stocks was found to be KRW 331.7 billion in the main board market (market average: KRW 2.229 trillion) and KRW 59 billion in KOSDAQ (market average: KRW 121.4 billion).
The Exchange further explained, "In many cases, the share prices of political theme stocks surge solely due to simple connections with politicians (such as alma mater, relatives, acquaintances, or region), and in most cases, this is unrelated to the company's performance or intrinsic value." The Exchange urged investors to refrain from speculative trading in stocks that experience sharp increases in price or trading volume based on unverified rumors or vague expectations.
The Market Surveillance Committee of the Korea Exchange announced plans to actively monitor and take market measures against political theme stocks during the 21st presidential election period, and to respond firmly in cooperation with financial authorities if unfair trading practices are detected.
The Exchange operates a three-stage market warning system?'Investment Caution' → 'Investment Warning' → 'Investment Risk'?to effectively address new types of unfair trading and abnormal surges, and to notify investors of risks in advance. If trading is concentrated in a small number of accounts or if there are abrupt price changes suggesting the possibility of unfair trading, a stock is designated as 'Investment Caution' for one day. If a stock experiences a sharp price increase over a certain period or displays trading patterns indicative of unfair practices, it may be designated as 'Investment Warning' or 'Investment Risk' for ten days. In such cases, the Exchange may suspend trading of the stock and implement additional trading restrictions, such as requiring 100% margin deposits, prohibiting the use of substitute securities, and restricting margin trading.
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