COVID-19 Triggered Stock Market Crash... Experts Say "Use All Available Measures"

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[Asia Economy Reporter Eunmo Koo] As the stock market has virtually collapsed due to the novel coronavirus infection (COVID-19) pandemic, calls are growing for the government to take strong and multifaceted measures. In particular, it is pointed out that beyond short-term market stabilization measures, comprehensive economic stimulus policies such as fiscal spending, tax support, and regulatory reform are needed to alleviate market anxiety.

According to the Korea Exchange on the 13th, the KOSPI closed at 1,834.33, down 73.94 points (3.87%) from the previous trading day. Following the breach of the 1,900 level during trading on the 12th, the market fell more than 5% intraday the previous day, dropping near the 1,700 level. Subsequently, the 1,700 level was also broken during trading that morning.

Earlier, as stock prices continued to plunge due to the COVID-19 situation, the Financial Services Commission (FSC) announced on the 10th a measure to ease the designation criteria for short-selling overheated stocks and extend the short-selling ban period for designated stocks from one trading day to ten trading days as part of market stabilization measures. However, despite the authorities' actions, the plunge continued, with a sidecar mechanism temporarily suspending program sell orders in the KOSPI market for the first time in about 8 years and 5 months.

With no brake on the stock price decline, financial authorities are preparing additional measures to stabilize the market. According to the financial authorities, the FSC is reviewing a contingency plan for market stabilization. This includes a ban on short selling for all stocks, the establishment of a stock market stabilization fund, and tax benefits.

The FSC stated that it has completed reviewing various options and only the consideration and decision on when and which measures to implement remain. An FSC official said, "The likelihood of a temporary short-selling ban being imposed has increased, and if the stock market stabilization fund is sufficiently large, it will greatly help supply and demand as a market stabilizer." Regarding tax benefits, the official added, "There could be various methods such as the revival of income deduction long-term investment funds, but it depends on how much the Ministry of Strategy and Finance's Tax Office will accept."

However, industry insiders unanimously said that the FSC's measures alone have limitations. Although the FSC can take various market stabilization measures including the stock market stabilization fund, stabilization measures are just that?measures to stabilize?and have little effect on boosting stock prices that are falling without bottoming out.

Industry insiders emphasized that tax benefits should be prepared first. Kang Bangcheon, Chairman of Asset Plus Asset Management, proposed, "It is necessary to provide income deductions or tax credits up to 20 to 30 million KRW annually for long-term investors holding for more than five years." He explained that if investors enter the market now with incentives at this low stock price point, they are more likely to have positive experiences in the future.

Heo Namgwon, CEO of ShinYoung Asset Management, also said that institutional improvements are needed to create reasons for stock investment. CEO Heo said, "Real estate is exempt from capital gains tax surcharges if held for more than 10 years," and added, "Tax benefits for long-term investment are necessary."

There are also voices that fiscal policy is more effective than tax benefits in boosting stock prices. Hwang Sewoon, a research fellow at the Capital Market Research Institute, pointed out, "Tax benefits are unlikely to have an immediate and clear effect on the market, and there are not many tax benefit cards available as tax revenues are declining." He emphasized, "Now is the time to actively expedite supplementary budgets, focusing on protecting self-employed and vulnerable groups, and support for healthcare-related industries is also necessary."

Soyeon Park, a researcher at Korea Investment & Securities, also said, "Measures that forcibly generate cash flow are fiscal policies rather than monetary policies," and added, "Since exports are the main driver of economic growth in Korea, bipartisan spending plans and fiscal policies are needed for the time being."

There are also opinions that fundamental policies are needed to improve the economy's structure by creating investment demand rather than temporarily boosting the stock market. Professor Youngik Kim of Sogang University Graduate School of Economics advised, "One of the biggest problems in our economy is that companies hold more than 600 trillion KRW in cash assets," and said, "We need to create investment demand for companies through deregulation and create an environment where the stock market can reflect corporate growth."

This content was produced with the assistance of AI translation services.