Securities Expert: "Financial Stabilization Measures Contribute to Market... But There Are Also Limitations"

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[Asia Economy Reporter Koh Hyung-kwang] Regarding the financial market stabilization measures prepared by the government on the 24th to cope with the novel coronavirus infection (COVID-19), securities industry experts predicted that the measures would contribute to market stabilization to some extent. However, there are also evaluations that these measures have limitations in boosting investor sentiment in the short term.

Soyeon Park, Head of Investment Strategy at Korea Investment & Securities, said immediately after the government’s announcement, "Fundamentally, private sector activities need to return to normal with the end of COVID-19, but it is meaningful that the measures preemptively blocked the transmission of real economy slowdown into credit risk until the virus is completely eradicated."

Regarding the establishment of the stock market stabilization fund, Researcher Park predicted, "Tax support measures are also being considered to reduce investment loss risks, which will enable active management." He also gave a positive evaluation on the bond stabilization fund, saying, "Although there were opinions that the initial size of the bond stabilization fund was insufficient compared to the bond maturities in the first half of the year, the authorities increased it and decisively accepted market demands."

Minjung Kim, a researcher at Hanwha Investment & Securities, also expressed expectations, saying, "In the situation where credit weakness continues due to global financial market instability, the government’s active market stabilization policies such as the bond market stabilization fund and the securities market stabilization fund will supply liquidity to companies, partially alleviating extreme credit crunch concerns."

However, Researcher Kim noted, "The securities stabilization fund was established in 1990 and 2008 for the purpose of boosting stock prices," adding, "Considering the high volatility of the stock market, the execution uncertainty of this fund is expected to be relatively higher than that of the bond stabilization fund."

Some also evaluated that it would be difficult for credit investment sentiment to recover in the short term solely through the operation of the bond stabilization fund. Taehun Lee, a researcher at eBest Investment & Securities, stated, "The bond stabilization fund helps reduce companies’ refinancing burdens and liquidity risks and drives buying demand in the secondary market, thereby contributing to reducing systemic risk across the market. However, it is difficult to reverse the worsening credit risk trends by individual sectors or issuers."

He continued, "Even before the COVID-19 crisis, investment sentiment for high-quality and non-investment-grade bonds showed polarization," adding, "Such deterioration in investment sentiment is hard to reverse in the short term. Given the scale of this impact, investors will likely monitor corporate performance improvements, restructuring, and debt reduction efforts for at least 2 to 3 quarters. Therefore, from the most optimistic perspective, credit investment sentiment is expected to remain sluggish throughout this year."

Meanwhile, the government held the 2nd Emergency Economic Meeting chaired by the President on the morning of the same day and discussed and announced the 'Financial Market Stabilization Measures Related to COVID-19.' In particular, as a stock market stabilization policy, it decided to establish a securities market stabilization fund worth 10.7 trillion won and provide tax support for Individual Savings Accounts (ISA).

Accordingly, the Financial Services Commission decided to establish the securities market stabilization fund with the participation of five major financial holding companies, 18 financial companies, and the Korea Exchange. The scale reaches 10.7 trillion won. This is 20 times larger than during the financial crisis and will be fully operational from early next month.

This fund will be invested and managed in index products representing the entire market, such as the KOSPI 200, rather than individual stocks, to promote overall stock market stability. The Financial Services Commission plans to pre-allocate and execute about 700 billion won of investments from securities-related institutions more quickly, even before April.

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