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| Yoon Suk Yeol is sworn in as president of South Korea at the National Assembly in Seoul, May 10, 2022. Joint Press Corps-Yonhap |
By Lee Min-hyung
The Yoon Suk Yeol administration, which marked its first year in office on Wednesday, is still leaving much to be desired regarding its lack of policy consistency on the controversial resumption of short selling.
The incumbent administration has generally drawn positive responses to its overall capital market policies by preemptively revamping some outdated ones in ways to meet global standards and attract more foreign investors.
Nevertheless, it appears the government has yet to come up with a consistent policy stance on whether to resume short selling in local stock markets amid fierce opposition from retail investors. Short selling is a trading technique that allows investors to generate profit from a fall in a stock's price.
The complete resumption of short selling is considered the most urgent requirement for Korea so as to gain developed market status from MSCI, a U.S. finance company. Few would refute the dire need for Korea to achieve this status recognition, so that the stock market can make another major leap forward. The step is also crucial in order to ease the so-called "Korea discount" ― a term used to describe the undervaluation of local stocks compared to their global counterparts due to the country's geopolitical risks and outdated regulatory environment.
Nonetheless, financial authorities have not displayed a unified policy direction about the issue.
The Financial Services Commission (FSC) underscored its basic stance, which is the need to completely resume short selling.
"There is a perception that Korea's partial resumption of short selling does not meet global standards," FSC Chairman Kim Joo-hyun said. "We also have a basic principle for the full resumption of short selling to keep activating the local capital market and attracting more foreign capital into the stock market here."
However, the Financial Supervisory Service (FSS) exhibited a somewhat ambiguous position on the issue.
"A number of market participants are expressing complaints regarding the complete resumption of short-selling," FSS Governor Lee Bok-hyun said. "But it is hard to discuss the agenda without building a consensus with market participants. We cannot even discuss the agenda without such a process."
Aside from the sensitivity of the matter, the administration has drawn positive feedback from the market, after rooting out the out-of-date policies rapidly. They include the abolishment of foreign investors' mandatory registration of key information when making investments here.
Unlike his predecessors, Yoon is adopting a more deregulatory policy stance in trendy investment areas. In February, the government approved the domestic issuance of security tokens ― a kind of cryptocurrency used to trade fractions of assets. The decision will allow more investors to trade security tokens as soon as 2024 if relevant laws are passed without delays.
After registering a lukewarm performance in 2022, the benchmark KOSPI is on a path toward stabilization this year. The main bourse started at 2,225.67 on the first trading day of 2023, and has since recovered to around 2,500 points as of Wednesday.
