The Financial Supervisory Service announced on May 1 that it will expand special monitoring in response to concerns over unfair trading and investor losses, as volatility in political theme stocks has increased following the confirmation of an early presidential election.
The FSS will elevate the head of the special task force for political theme stocks, currently under the Investigation Bureau, to the director of Investigation Bureau 1, thereby expanding its operations. In addition, it plans to intensively monitor major information dissemination channels, stocks with abnormal surges, stocks with frequent complaints or reports, stocks where major shareholders have made large-scale sales, and stocks that have recently undergone large-scale convertible bond (CB) conversions.
At the same time, the FSS will establish a joint response system with the stock exchange and other entities to expand role-sharing and information exchange. Furthermore, to encourage insider and investor reports, a focused reporting period for political theme stocks will be operated until July 31, during which rewards of up to 3 billion KRW will be actively considered.
According to the FSS, in the early stages of election season, stock prices typically fluctuate sharply for stocks related to individuals associated with prominent politicians through school, regional, or blood ties. As the election date approaches, policy-related stocks linked to campaign pledges tend to experience high price volatility.
Political theme stocks generally have weak financial structures, such as high debt ratios, and declining profitability. Nevertheless, their stock prices are often set at high levels. As of April 22, the average price-to-book ratio (PBR) of political theme stocks stood at 2.3 times, which is more than double the market average, indicating an overheated state. The FSS noted that 14 stocks in particular had a PBR of over 3 times, meaning their stock prices were significantly overvalued relative to their asset values.
Stock price volatility was also high. From December 3 of last year to April 22, the daily price fluctuation rate of the political theme stock index ranged from a low of -6.5% to a high of 18.1% (with a daily average of 3.0%), and daily volatility was around 3.3%, which is three times higher than that of KOSPI (1.04%).
The FSS pointed out that during the 19th presidential election, stock prices repeatedly surged and plummeted in response to political developments, only to return to their original levels before and after the election day. This made price predictions difficult and volatility high, resulting in very high investment risk.
The FSS explained, "Political theme stocks can experience sharp price fluctuations based solely on personal ties such as school or regional connections to politicians, regardless of the company's performance or intrinsic value. Investors should be cautious, as unverified information can mislead them."
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