As the political situation remains chaotic following the martial law and impeachment crisis, political theme stocks are experiencing sharp fluctuations in the stock market. Regardless of the business outlook or performance of listed companies, stock prices rise and fall sharply simply because the largest shareholder or executive is connected to a prominent politician through lineage, academic ties, or family relations. A company may even become a political theme stock simply because its factory is located in the hometown of a prominent politician. This is truly mindless investing.
In the past, there were concerns that investing in theme stocks could make one a target of speculative forces. However, recently, as the trading volume of stocks riding the wave of political themes increases and stock prices skyrocket, a speculative mentality has emerged, where making quick profits is all that matters. This is why many investors choose to invest even when they know the stocks are not linked to prominent politicians.
On the 28th, when the domestic stock market plummeted by more than 3%, 836 out of 941 stocks in the Korea Securities Market fell, but Pyung Hwa Holdings closed up by 5%. After rising for eight consecutive transactions, the stock, which had been trading in the 3,700 won range just ten days ago, surpassed 7,500 won that day.
The Korea Exchange demanded the company disclose whether there was information that could influence stock price fluctuations. In response, Pyung Hwa Holdings noted, "There are no significant disclosure matters that could affect recent substantial market fluctuations; however, our stocks have been mentioned as a theme stock for a specific politician, which has no relevance to our past or current business operations."
The recent surge in Pyung Hwa Holdings' stock price is attributed to it being identified as a theme stock related to Minister of Employment and Labor Kim Moon-soo. Pyung Hwa Holdings, which owns the subsidiary Pyunghwa Industrial, was classified as a theme stock for the Minister because its subsidiary's production facility is located in Yeongcheon, Gyeongbuk, the Minister's hometown.
A financial sector official who noted investing in political theme stocks said, "Very few investors believe that Pyung Hwa Holdings is actually related to the Minister; what matters to those buying theme stocks is the increasing transaction volume and soaring stock prices. He added, "It's not easy to make money by holding Samsung Electronics for years, but if you catch a theme stock right, you can make tens of percent in a day," highlighting why many investors continue to invest in theme stocks despite knowing the risks.
The problem is that as stock prices rise and fall during the theme stock frenzy, investors are suffering, and the soundness of the stock market is deteriorating, but there are not many ways to prevent this.
Even if a company directly clarifies that it has no connection to a politician, the situation remains the same. The chemical company Duksung, listed on the Korea Securities Market, was mentioned as a theme stock for Yoon Suk-yeol during the 2023 presidential election. As its stock price soared, the company responded, "We would like to inform you that our stocks are being mentioned as a political theme stock, but they are completely unrelated to our past or current business operations."
Typically, companies mentioned as theme stocks and whose prices fluctuate give brief responses to the Korea Exchange's inquiry for disclosure, stating there are "no significant disclosure matters," but Duksung unusually took the initiative to clarify. However, despite the company's clarification, the phenomenon of Duksung's stock price sharply rising and falling is repeating.
Another political theme stock, e-STARCO, took a more active approach to clarification. When its stock price soared at the end of last year, it disclosed, "There is no relation between Member of Parliament Lee Jae-myung and our company concerning public housing and related matters, nor does our business have any relevance to it."
After the company's announcement, it seemed like the stock price that had surged would fall, but even now, the stock experiences sharp rises and falls whenever Lee Jae-myung, the leader of the Democratic Party, draws attention.
The Financial Supervisory Service (FSS) is concentrating on examining unfair transactions related to political theme stocks. If they find evidence of unfair trading, such as disseminating false information or rumors related to theme stocks, they will immediately initiate an investigation and impose strict measures based on the principle of zero tolerance if illegal activities are confirmed.
The Korea Exchange is also continuing to strengthen its management and supervision of theme stocks. The exchange is engaging in market surveillance activities through a comprehensive databases management system for theme stocks. When stocks are mentioned in connection with specific keywords on social media platforms like Telegram or YouTube or in individual stock discussion forums, and their prices experience sharp fluctuations, they are flagged as theme stocks to investigate whether unfair trading is occurring. Although the Korea Exchange does not officially announce the existence of theme stocks, it monitors these trends internally.
Before determining a transaction as unfair, there are preventive measures for securities firms to refuse custody of accounts in which unhealthy orders are confirmed.
However, the reason this safety net does not prevent the proliferation of political theme stocks is that rapidly shared information is being used by individual investors for quick trades to induce large market fluctuations. Unverified information is overflowing not only on social media such as Telegram and YouTube but also in individual stock discussion forums.
A financial authority official said, "While there is a tendency for unfair trading to increase when the market fluctuates rapidly, much of it is due to individual investors trying to enhance their returns through quick trades; thus, we cannot regulate all of it," adding that "speculative behavior ultimately leads to investment losses."