On July 29, Deputy Prime Minister and Minister of Finance and Economy Koo Yun Cheol convened an Emergency Market Situation Review Meeting to assess market conditions at the Government Complex Seoul. The meeting was attended by the Governor of the Bank of Korea, the Chairmen of the Financial Services Commission and the Financial Supervisory Service, and the Senior Presidential Secretary for Economic Growth. Participants reviewed recent developments in domestic and global financial markets and discussed the government’s policy response going forward.
Participants noted that the recent sharp decline in the stock market, led by semiconductor shares, was driven by intensifying competition in the memory chip industry stemming from China and growing concerns over funding needs among major U.S. technology companies. They assessed that the market downturn was amplified largely by weakening investor sentiment and unstable market flows during what was essentially a correction following the recent sharp run-up in stock prices. They also agreed that Korea’s economic fundamentals remain solid, supported by continued robust exports of key products, including semiconductors, upward revisions to corporate earnings forecasts, and a widening current account surplus. In this regard, they stressed the need to guard against excessive concerns about the outlook for the Korean stock market.
At the same time, noting that the Korean stock market has experienced significantly greater volatility than those of other major markets as well as compared with its own historical levels, participants decided to conduct a thorough analysis of the factors driving the heightened volatility and to maintain a 24-hour market monitoring system with the highest level of vigilance for the time being.
Participants also shared concerns that the concentration of investment in single-stock leveraged products has contributed to heightened volatility in the stock market, and committed to responding swiftly and decisively with a strong sense of responsibility. Alongside the prompt implementation of the previously announced supplementary measures, including raising the minimum deposit requirement, effective July 31, the authorities will immediately pursue the following additional measures.
1. Manage overall exposure by introducing investor-specific investment limits (e.g., capping investments in single-stock leveraged products at 20 percent of an investor’s total investment portfolio).
2. Increase transaction costs to discourage excessive trading (e.g., applying an excessive order fee, similar to that currently imposed in the futures market).
3. Introduce simulated trading in addition to the existing mandatory investor education program.
4. Establish a legal basis for the authorities to take market stabilization measures in emergency situations, drawing on overseas practices, including Hong Kong’s flexible leverage framework.
Participants also committed to accelerating efforts to strengthen the structural soundness of the capital market in order to reduce volatility in the Korean stock market and promote long-term market stability.
To this end, the authorities will encourage listed companies to enhance corporate value and improve corporate governance, while expediting institutional reforms, including measures to strengthen the quality and competitiveness of the KOSDAQ market.
Please refer to the attached files.
