Taiwan, China tap market rescue funds. Why won't Korea?

China and Taiwan have tapped market rescue funds to reverse last week's sharp stock sell-off, triggered by the U.S. midterm elections. Korea, meanwhile, is holding back, resisting calls from retail investors to deploy what policymakers consider a weapon of last resort.

KOSPI has shed 11.13 percent since the start of November as of Monday, leaving the benchmark down 42.87 percent from its June 22 record high of 9,114.55 as concern mounts that the artificial intelligence boom has peaked.

The government said it would temporarily suspend a rule requiring brokerages to maintain collateral worth at least 140 percent of margin loans from Monday through Jan. 31 next year. The move is aimed at preventing forced selling from deepening the market rout.

But the measure has failed to satisfy 14.42 million retail investors, who are pushing for the activation of a market stabilization fund amid a dearth of major buyers.

Share buyback programs by Samsung Electronics and SK hynix that helped absorb foreign selling ended on Oct. 21. While SK hynix has begun another round of repurchases, the new program is smaller and spread over a longer period.

The National Pension Service widened its domestic equity allocation range during the first-half rally but failed to pare holdings near the peak, limiting its capacity to buy into the latest sell-off.

"So many people have invested in stocks ... With markets facing abnormal conditions, I think government intervention may be necessary," Yeom Seung-hwan, director of LS Securities, said on MBC radio, Monday.

The market stabilization fund pools money from financial institutions to buy stocks and cushion declines. It mainly invests in index-tracking products, including exchange-traded funds linked to the KOSPI 200.

Anna Wu, founder of Australia-based Floodlines Research, sees little prospect of an imminent intervention, citing Korea's greater reluctance to intervene in markets than Taiwan.

Taiwan has deployed its fund 10 times since 2000, allowing authorities to signal support without formally acknowledging a crisis, she said. Korea, by contrast, has established stabilization funds five times — in 1990, 2003, 2008, 2020 and 2022 — but hasn't deployed them since 2008.

For Korea, the fund remains a "last bullet," Wu said, adding that a drop below 5,000 on the KOSPI could prompt authorities to act.

Speaking to reporters on Oct. 19, President Lee Jae Myung also warned against direct government intervention in the stock market, saying it was "undesirable" and that efforts to influence share prices could cause serious problems.

Analysts say a stabilization fund could provide a circuit breaker in Korea, containing panic selling and restoring investor confidence. Still, they cautioned that the impact may prove short-lived given its relatively modest size and the volatility in the memory-chip trade.

"The memory trade is crowded with retail and foreign money, and that money isn't loyal. The fund is a good booster right now, but I doubt it changes the trend," Wu said.

To have a psychological impact, the fund would need to be scaled up well beyond 20 trillion won ($14.9 billion), said Manishi Raychaudhuri, CEO of Hong Kong-based Emmer Capital Partners. Korea raised 10.76 trillion won for its market stabilization fund during the COVID-19 market rout.

"Today, the total KOSPI market cap hovers closer to 3,000 trillion won, with daily trading volumes often breaching 40 trillion won," Raychaudhuri said. "Any fund smaller than 25-30 trillion won would simply be diluted by the overwhelming volume of foreign institutional outflows."