Lee Yeon-woo is a financial journalist at The Korea Times. Her wide range of reporting includes policies, macroeconomics, stock market, companies and even crypto. She is passionate about connecting the dots in Korean finance and making it easier for foreign nationals to understand. Based on her previous experience as a national reporter, she also has a keen interest in social issues within the sector, including gender equality and ESG. Your tips and insights are always appreciated. You can send them to yanu@koreatimes.co.kr.
Will gov't stabilization fund revive KOSPI or is it just another vague promise?
An employee at Hana Bank's dealing room walks past a display in Seoul, Wednesday, as it shows the benchmark KOSPI and the won-dollar exchange rate. Newsis
By Lee Yeon-woo
Since the president's short-lived martial law declaration, the top four financial leaders — representing the finance ministry, the Bank of Korea, the Financial Services Commission and the Financial Supervisory Service — have been holding daily emergency meetings. During these discussions, they repeatedly emphasized that the 10-trillion-won ($6.9 billion) market stabilization fund will be prepared to address the plummeting stock market.
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Despite the reassurances, details about the fund's activation, such as the specific timing or criteria, remain undisclosed. Although officials have made several verbal commitments, the fund has not been deployed since the 2008 financial crisis. In the years since, it has served primarily as a tool for verbal intervention, used to curb panic selling without actual disbursement.
However, the recent plunge, which dragged down the already struggling stock market, has seen retail investors calling for its immediate activation. Although the scale of the fund may not be sufficient to significantly boost the stock market, they believe it will have a positive effect on improving investor sentiment.
As foreign capital fled the market on Monday, the KOSPI hit the bottom by falling 5.5 percent during trading hours, and the secondary Kosdaq dropped to a two-year low. Although both indices slightly rebounded in subsequent days, they remain precariously low compared to their global peers, with the potential to reverse course at any moment.
"The relative strength of the domestic market compared to global markets has reached its lowest level in nearly 23 years," Yuanta Securities analyst Kang Dae-seok said. "The stabilization fund is likely to be deployed for the first time in 16 years, driven by the prolonged underperformance of the domestic stock market."
The fund, designed as a market support mechanism, aims to stabilize prices during sharp declines and is financed by securities firms, banks and other financial institutions. The latest one was established during the COVID-19 pandemic as a 10-trillion-won initiative and has yet to be deployed. Its operation is managed by Samsung Asset Management.
Still, deep disagreements persist within and outside the financial industry over whether deploying the fund is necessary — and if so, when.
Song Min-kyu, senior research fellow at the Korea Institute of Finance, argued that past uses of the stabilization fund failed to revive stock prices or increase liquidity.
"It is important to determine whether the sharp stock price decline stems from internal market issues or broader fundamental factors. If it is the latter, the use of the stabilization fund should be avoided," he said.
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Similar caution was expressed by Kim Hak-kyun, senior managing director at Shinyoung Securities, during a meeting hosted by the three opposition parties at the Korea Exchange, Tuesday.
"The (amount of) 10 trillion won is equivalent to the amount foreign investors sell in just a few days," Kim said. "If retail investors' panic selling continues two or three more times, then it would be worth considering market intervention through the fund."
He added, "There is no solution other than for our community and political circles to quickly mitigate the uncertainty."