Kospi volatility rattles global markets, but more stimulus is not the answer
--As wild swings shake Korea's stock market, pressure is growing on the government to curb speculation instead of fueling another rally--

Korea has become the foreign stock market attracting the greatest attention on Wall Street. Bloomberg recently reported that many fund managers in New York now begin their mornings by checking the previous day's movements in the Kospi. Earlier, the news agency warned that Korea's single-stock leveraged exchange-traded funds (ETF) were amplifying volatility in global markets. The Wall Street Journal went further, likening the Korean market to the Netflix series "Squid Game" (2021-25) and cautioning retail investors about the risks.

Warnings from overseas are mounting. The Kospi, which broke above 9,000 on June 22, has swung wildly and fallen back to around 6,500 in just one month. Trading curbs known as sidecars have been triggered almost daily in recent weeks. Individual investors who sold U.S. stocks in April and May and returned to the domestic market have begun moving back into American equities since June to escape the turbulence.

No one can predict where stock prices will go next. What is clear, however, is that the Korean market's excessive volatility poses a serious problem.

The recent rally has been driven largely by semiconductor stocks led by Samsung Electronics and SK hynix. Yet it is difficult to remain optimistic about how long that trend will continue.

Until now, the government has pursued stock-market policies that amounted to stimuli in all but name. Share prices soared, lifting the overall size of the market. But hastily implemented measures, including expanding the National Pension Service's investment ceiling for domestic equities and introducing leveraged ETFs, only added fuel to the volatility.

The government also showed little willingness to cool speculation even as debt-financed stock investments became widespread. Stronger revisions to the Commercial Act, tighter regulations on rights offerings and sweeping restrictions on real estate ultimately reinforced efforts to boost the market. It would not be an exaggeration to say that supporting the stock market has been the top priority of the current administration's economic policy.

Markets, however, do not always move according to the government's intentions. Stocks have become increasingly unstable, while the real estate market has grown more uncertain. Some observers argue that the biggest beneficiaries of the current situation are foreign investors who withdrew aggressively from Korean equities.

The government should abandon its heavy reliance on stock market stimulus. Above all, it must stop sending signals that it intends to keep driving share prices higher.

The government's role is not to push up the market. Its responsibility is to prevent overheating and speculation while creating an environment that encourages long-term investment and sustainable growth.
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