Stock Market Reacts to Stimulus Measures... Side Effects Include Transformation into a Speculative Arena

Former Presidents and the Stock Market... Challenges for the Yoon Suk-yeol Administration<3>

[Asia Economy Reporter Ji Yeon-jin] Crisis was both an opportunity and the starting point of another crisis. The domestic stock market, with a history of over 60 years, has experienced ups and downs depending on internal and external economic conditions. Government policies sometimes acted as a spark for a boom, but also caused side effects that turned the market into a speculative playground.

◆ If you grow a forest, tigers will come = According to the financial investment industry on the 11th, the domestic stock market was established with the launch of the Korea Stock Exchange on March 3, 1956, and a full-fledged market was formed during President Park Jeong-hee's era in 1972 with the enactment of the "Act on Promotion of Corporate Public Offering." This law, which mandated the listing of companies meeting certain requirements, triggered a rush of large corporations going public, and the stock market also took shape institutionally. Subsequently, the stock market grew dramatically through the administrations of Chun Doo-hwan and Roh Tae-woo in the 1980s. Domestic companies, riding on the "three lows" (low oil prices, low interest rates, low dollar), showed rapid growth, attracting funds into the stock market and sustaining a boom. The online stock trading system was also introduced during this period. In 1983, the KOSPI, a comprehensive stock price index based on market capitalization, was introduced; starting at 100, the index reached 1003.31 on March 31, 1989, ushering in the "KOSPI 1000 era."

The policy allowing foreign direct investment introduced in 1992 revived the stock market, which had been declining in the early 1990s as a consequence of the "three lows" boom. At that time, foreigners concentrated on buying undervalued stocks, injecting liquidity and vitality into the domestic stock market. The Kim Young-sam administration, which regarded the stock market as the "lifeblood of the economy," implemented measures such as opening the KOSDAQ market, but also emphasized market stability through the introduction of the real-name financial system and securities transaction tax. However, the 1997 IMF crisis caused a sharp stock market crash, leading to a "dark period" for the market. Afterwards, under the Kim Dae-jung administration, the stock market experienced rapid growth by significantly easing regulations on the KOSDAQ market to overcome the foreign exchange crisis. During the Roh Moo-hyun administration, which promoted a "financial hub," foreign investment increased due to China's rapid growth, and policies encouraging indirect investment through fostering asset management companies and allowing pension funds to invest in stocks proved effective. The KOSPI even surpassed the dream milestone of 2000 on July 24, 2007. The Lee Myung-bak administration, elected on a pledge of "KOSPI 5000," saw the stock market sidelined during the process of overcoming the 2008 global financial crisis, and during the Park Geun-hye administration, despite deregulation of private equity funds, the term "Boxpi" was coined.

Park Jeong-hee administration: Corporate Public Offering Act, rush of large corporation listings
Roh Moo-hyun administration: Encouragement of indirect investment, KOSPI surpasses 2000

Roh Tae-woo administration: 12·12 stimulus plan, financial companies’ poor financial structure
Kim Dae-jung administration: Venture promotion contributed to dot-com bubble

◆ Stimulus measures that sold dreams but became poison = There are cases where measures introduced to overcome economic crises instead led the stock market into stagnation. The "12·12 stock market stimulus plan" launched by the Roh Tae-woo administration in 1989 to support the stock market, which had collapsed below the KOSPI 1000 level, involved unlimited support for stock purchase funds of investment trust companies and is considered the most intense stimulus plan in history. However, the ballooning interest on borrowed funds caused the financial structure of investment trust companies to deteriorate severely.

The Kim Dae-jung administration's measures to revitalize the KOSDAQ market to foster venture companies are also evaluated as having contributed to the "dot-com bubble." The global IT boom and support funds released during the process of overcoming the foreign exchange crisis led to a fever for stock investment, and as the government lowered the threshold for KOSDAQ listings, a venture boom centered on IT industries appeared in the stock market. However, due to the poor earnings of U.S. IT companies and the subsequent sharp decline of the NASDAQ market, along with a series of stock price manipulation scandals among KOSDAQ-listed companies, the domestic stock market bubble burst. The KOSDAQ index soared to an all-time high of 2834.3 on March 10, 2000, but plunged to 525.8 by the end of that year, a drop of about 80%. This led to the perception of the stock market as "speculation," causing the KOSDAQ market to stagnate for 20 years. Since the Kim Dae-jung administration, all governments have implemented policies supporting small and medium enterprises and ventures. Nam Gil-nam, senior researcher at the Korea Capital Market Institute, said, "The stock market is a market that sells dreams," adding, "With new business funds flowing in, the government promoted venture growth policy-wise, which swept the dot-com fever. While KOSDAQ stimulus could be good for 2 to 3 years, ultimately, the stock market was more influenced by global variables."

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