[Inside Chodong] Time to Beware of the 'Cheat Code' of the General Election

"Everything Will Be Fine Until the General Election":
Optimism Spreads Amid PF Insolvency Concerns...
Time to Tread Carefully

With the '22nd National Assembly Election' scheduled for April 10 next year, political theme stocks are fluctuating, spreading baseless optimism that 'the stock market will be fine until the general election.' Given the prolonged high interest rates and the impact of the real estate slump, which raise concerns about the insolvency of real estate project financing (PF), it is time to be cautious about excessive optimism.

Wider Planet's stock price has surged 658% from the beginning of this month through the 22nd. The stock price, which was below 3,000 won at the end of last month, rose to as high as 29,850 won intraday on the 21st. Afterwards, as selling pressure for profit-taking increased, the stock price was pushed down to around 21,000 won.

The rapid rise in the stock price in a short period is linked to the news of actor Lee Jung-jae's investment. Earlier, on the 8th, Wider Planet announced a third-party allotment capital increase targeting actor Lee Jung-jae and Jung Woo-sung, Wysiwyg Studios, and co-CEOs Park Kwan-woo and Park In-gyu of Wysiwyg Studios. Since then, Wider Planet has continued a seven-day streak of hitting the upper price limit. Although the Korea Exchange suspended trading twice to prevent overheating, the surge continued. The news that Mr. Lee, known to be a classmate of former Minister of Justice Han Dong-hoon at Hyundai High School, had invested attracted many individual investors to buy Wider Planet shares.

In the past, stock prices related to prominent politicians moved ahead of general elections, but the theme strength was relatively weaker than during presidential elections. This year, theme stocks have shown unusually strong movements. Even aside from political theme stocks, the general election significantly influences individual investors' sentiment. Many investors vaguely expect that 'even if the stock market plunges, the government, which must lead the election to victory, will introduce stimulus measures.' Previously, the government abruptly banned short selling on the 6th of last month. After reaching an all-time high in July, stocks related to secondary batteries such as Ecopro and Ecopro BM, which had declined for three months, surged simultaneously, and individual investors welcomed the government's measures.

The government has again pulled out the card of easing the capital gains tax imposition criteria. While some criticize the government for issuing populist policies ahead of the general election, individual investors generally welcome the move. They expect that the volume of capital gains tax avoidance, which had invariably acted as downward pressure on the market toward the end of the year, will decrease. Although concerns about real estate PF insolvency are growing, many investors expect that the government will intervene to prevent the worst-case scenario, such as a chain default, before the general election.

There is a stock market adage: "The correction you wait for never comes." The stock market often moves contrary to expectations. The more optimistic investors are, the greater the possibility of a market correction; conversely, when many investors wait for prices to fall, the market tends to rebound. The financial sector worries that PF insolvency could become a time bomb with an unpredictable trigger.

Although vague optimism is growing, the pace of domestic economic recovery is likely to be slower than expected. The Export Industry Business Outlook Index for next year, announced by the Korea International Trade Association, stands at 97.2, an improvement from 90.2 in the fourth quarter of this year. Since it remains below the baseline of 100, the export recovery speed is expected to be slow. There are also repeated securities industry warnings to be skeptical of corporate earnings that do not reflect recent forecast adjustments.

High expectations lead to greater disappointment. The more widespread the optimism, the stronger the FOMO (Fear Of Missing Out) phenomenon, where investors fear being left behind in a rising market. Investing solely on the expectation that the government will stimulate the stock market without proper investment judgment can lead to losses. One must carefully verify before crossing the bridge, so as not to be deceived by the mirage that 'it will be fine until the general election.'

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