FSC vows to tackle overheated themed stocks

Regulatory agency remains cautious about lifting all restrictions on short-selling

Kim So-young, vice chairman of the Financial Services Commission speaks during a press conference held at the Central Government Complex in Seoul on Thursday. (Yonhap)

Kim So-young, vice chairman of the Financial Services Commission, stressed the agency's commitment to shielding investor trust from volatile themed stocks.

“During the second half, we will strengthen our efforts to address the issue of excessive investment concentration in themed stocks,” Kim said during a press conference held at the Central Government Complex in Seoul on Thursday.

The FSC's stance on themed stocks follows a recent surge in volatility in Korean secondary battery stocks like EcoPro, leaving investors grappling with uncertainty.

Similarly, stocks related to superconductors embarked on a thrilling rollercoaster journey, after the announcement from a research team at the Quantum Energy Research Centre came out. This team disclosed their groundbreaking discovery of a room-temperature superconductor named LK-99 on July 22.

"We intend to restore investor confidence in stock investments based on a company's performance and outlook,” Kim added.

The FSC's vice chairman warned that if investors have borrowed funds for investing in themed stocks, the resulting potential losses could be overwhelming.

Kim's vision for tackling overheated themed stocks revolves around three primary measures: enhancing corporate disclosure regulations; cracking down on baseless rumor dissemination; and closely monitoring the sound operations of securities firms.

Kim said some companies tend to exaggerate their business plans and he plans to encourage more "comprehensive disclosures.”

The FSC will also actively look into the dissemination of unverified information regarding themed stocks through social media channels.

Furthermore, he emphasized that the FSC will work toward ensuring that securities firms operate prudently, refraining from encouraging investors to invest in themed stocks through loans.

When questioned about the mounting uncertainty due to declining stock prices during the press conference, Kim said he is not concerned.

On Thursday, South Korea's benchmark stock index began at 2,510. Within 20 minutes of the market opening, it plummeted below the 2,500 mark.

This marks the first time since May 17 that the index has dipped below 2,500.

Despite a swift recovery to over 2,500 by 11:30 a.m., some industry insiders have observed lingering market uncertainty.

"While it can mean that the financial market hasn't fully stabilized, a Kospi dip below 2,500 isn't perceived as a substantial concern,” Kim said.

He further remarked that even during a more challenging scenario last year, which was influenced by higher interest rates in the US, significant issues didn't arise.

During the press conference, a significant emphasis was placed on the FSC's commitment to address the "Korea discount" – a term denoting the undervaluation of the domestic stock market.

Kim talked about the FSC’s direction toward more relaxed regulations for foreign investors.

Nonetheless, he reaffirmed with unwavering conviction that the FSC's standpoint concerning getting an upgraded status from Morgan Stanley Capital International (MSCI) and short-selling remains unchanged.

It continues to maintain its passive approach toward MSCI and keep its reservations regarding the full authorization of short-selling.

“An MSCI upgrade is not our goal. It is good if we win developed market status,” Kim added.

In June, Korea failed to win developed market status on the global stock indices provided by Morgan Stanley, despite the hopes of being reclassified from an emerging market.

MSCI has identified various drawbacks, including short-selling limitations, which have hindered the global index provider from upgrading Korea's status.

“In the medium to long term, I think fully permitting short-selling is possible, but pinpointing the timing is challenging. We'll take market conditions into account as we consider this move,” he said.

The government temporarily banned short-selling to protect the stock market from a major fall at the start of the COVID-19 pandemic. In May 2021, the government started allowing short-selling of only Kospi 200 and Kosdaq 150 stocks.

By Song Seung-hyun(ssh@heraldcorp.com)