Moon the stockbroker
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The author is a columnist of the JoongAng Ilbo.
President Moon Jae-in associated the Kospi hitting 3,000 with bright prospects for the Korean economy. After concerns arose over the gap between the heated stock market and our economic reality, a ruling Democratic Party (DP) lawmaker brushed them off, demanding “not to douse the flame of hope.” It is sad that the ruling front has to ride on the stock rally backed by lush liquidity to cover up for its poor economic performance over the last four years.
But the Moon Jae-in administration has no part in Kospi gains. Its stimuli measures aimed at fighting Covid-19 fallouts funneled funds into the asset market, not the real economy. Unlike the red-hot stock market, the economy is frozen. The payroll count fell by the most since the wake of the 1997-98 Asian financial crisis. The net asset gap between the top and bottom 20 percent grew 1.67 fold since May 2017 when the Moon administration launched. If it had any care for the sufferings of the self-employed, small merchants and laid-off, the government would not be gloating about the stock rally. Near the National Assembly in Yeouido, western Seoul, fitness center owners have been staging protests against the shutdown measures.
There has been much hype about retail investors defending the stock market against selloffs by institutional investors and foreign players. The government has even praised the Kospi for “overcoming the Korean discount stigma.” In his book “16 Rules for Investment Success,” Sir John Templeton, an American-born British investor, banker and fund manager, famously said, “The four most expensive words in the English language are ‘This time it’s different.’” The words proved to be brutally true during the 1997 Asian financial crisis, the dotcom bubble burst in the early 2000s and the financial meltdown in 2008.
The correlation with the stock and economic movement is often likened to an excited dog on a very long leash. When the dog (stock) runs wildly on the long leash (liquidity), you cannot tell where the pooch would head or what trouble he may cause. Instead of letting it be, the government should pull the dog to its side to keep it from causing troubles for others.
Politics must not sing to the dance of retail investors. Some DP lawmakers pressured authorities to extend the ban on short selling so as not to ruin the bullish mood. A professional asset manager advised that short selling currently restricted to institutional players and foreigners be open to individual investors. Of course, punishment for illegal short-selling activities should be toughened and short sales needs to be banned on small-cap stocks with a heavy gap in information. But such measures should be mapped out by experts, not politicians.
A canary is used to detect dangers in a coal mine because it is sensitive to toxic air. A small bird has evolved to move incessantly to survive in air. It maintains up to 100 heart beats and 1,000 pulse beats per minute. It responds very sensitively to toxic smells. Retailers in the stock market are like canaries. They are no match for institutional or professional investors. They must be more agile and sensitive to survive in the jungle. Building limitless protections for retail investors is neither possible nor appropriate. A deadened canary can hardly survive.
It is also wrong to refer to stock investment as an act of patriotism. It is as if fielding untrained student soldiers to the battlefield. Will they be called a “traitor” if they dump their shares at the last minute and send the stock prices tumbling down? Does the act of cheering those retail investors who are making bets to make money meet the ideological values of the liberal administration?
Instead of pushing them into the cruel money game, authorities must study harder various ways to solve the fundamental problems of our economy. They must re-examine all the policies designed to protect the weak, which only have aggravated their woes.