After the launch of the Lee Jae-myung administration last year, which emphasized revitalizing the stock market, Korea's stock market surged at a frightening pace as the global artificial intelligence (AI) boom overlapped. The KOSPI index, which had stayed in a trading range for decades, topped 4,000 points for the first time last year and then went on to break through 5,000, 6,000, 7,000 and 8,000 points this year.
Even after warnings that the market is overheated, the index kept rising without hesitation, and the stock market's grand-theory camp is gaining strength, saying "this time is different." Although the KOSPI index has faced a steep correction recently after breaking through 8,000 points, the outlook remains optimistic. Some say that if Samsung Electronics and SK hynix, which have led the recent rally, soar to 500,000 won and 3 million won, respectively, an era of KOSPI 10,000 points would not be impossible.
However, the history of the capital market has repeatedly proved that the peak comes when everyone is cheering. Right after social media was flooded with "Bitcoin jackpot certifications," the coin frenzy began to slide, and the sharp stock surge led by the "Donghak ants" after the COVID-19 outbreak likewise gave way to a severe slump. The secondary-battery investment mania, epitomized by the EcoPro trio's spike, also ended in a brutal game of "passing the bomb."
◇ The steeper the jump, the deeper the fall
Right after the COVID-19 pandemic, the euphoria of "Samcheonpi" (KOSPI 3,000 points) and "Cheonsdaq" (KOSDAQ 1,000 points), lifted by zero (0) interest rates and abundant liquidity, did not last long. The KOSPI index, which climbed to a record 3,305.21 in July 2021, plunged on concerns over inflation and global interest rate hikes.
In September 2022, 1 year and 2 months later, the KOSPI sank to an intraday 2,134.77, down 35.41% from its peak. Samsung Electronics also showed a sluggish share-price trend after the pandemic. After breaking 96,800 won in January 2021 and fueling expectations for "100,000 Electronics," it was trapped in a stubborn trading range for nearly four years, causing pain for millions of retail investors.
The KOSDAQ market, which drew a flood of individual investor funds, fared even worse. After touching an intraday 1,062.03 in Aug. 2021, the peak of Cheonsdaq, the index slid to an intraday 650.33 in Oct. 2022. The decline reached 38.76% from the top in one year. Funds from individual investors who jumped into the late bull market melted away helplessly.
The share prices of growth and theme stocks, which were built on baseless expectations and digital narratives, fared even more miserably. Kakao, once the icon of platform growth stocks, soared to an intraday 173,000 won in June 2021, but amid controversy over a split listing and legal risk faced by management, it now trades around the 40,000-won level, more than 75% below the peak.
Biotech and diagnostic test-kit stocks that grew explosively during the pandemic were no exception. Seegene, the leading COVID-19 test-kit stock, is still stuck in a trading range around 30,000 won, more than 80% below its 2020 peak of 161,121 won. Shin Poong Pharm, which spiked to 214,000 won amid the treatment-drug frenzy at the time, has now fallen back to the low 10,000-won range, a 95% plunge from the top.
◇ "Crack down on illegal acts that fuel speculation"
Investor enthusiasm in the stock market is hotter than ever. While the government has tightened regulations on the real estate market, it has also opened the floodgates for more household funds to flow into the stock market, and as the global AI boom has sharply improved the earnings of listed domestic companies, the foundation for share-price gains has been firmly laid.
On top of that, various stock-investment tips are spreading rapidly through social media channels such as YouTube and Telegram. As a large portion of the public jumps into stock investing, the FOMO (fear of missing out) sentiment that one will be left behind if not participating in the market has reached a peak.
However, experts worry that because the market has climbed steeply in a short period, the pain could be greater if a correction comes.
Lee Seung-hoon, head of research at IBK Securities, cited the external macroeconomic environment and supply-demand overheating as risk factors. Lee said, "Oil-price instability due to the delayed Iran war and the surge in U.S. government bond yields are a heavy burden on the stock market," adding, "Amid high expectations, concentration in certain large-cap stocks has intensified, and excessive leveraged investing, including exchange-traded fund (ETF) leverage, is amplifying supply-demand volatility, so now is the time to respond conservatively."
Of course, there is a counterargument that the current market rise is different from past investment frenzies. Lee June-seo, a professor at Dongguk University, said, "During COVID-19, markets plunged amid an exceptional pandemic and rose only on expectations without earnings support, whereas now we are entering a semiconductor supercycle accompanied by corporate profit growth," adding, "With efforts such as the government's Commercial Act revisions to enhance governance transparency, many factors behind the undervaluation of the Korean stock market have eased, so it will not collapse vainly as in the past."
Even so, many experts agree that we must prepare for the "shadow" behind the historic celebration of the KOSPI crossing the 8,000 level.
In particular, there are calls for urgent preemptive measures against illegal "leading rooms" on social media that lure investors, taking advantage of heightened volatility. Nah Hyun-seung, president of the securities academic association, noted, "While channel diversification has its benefits, regulators must pay close attention to misinformation and illegal leading rooms."
An official in the financial investment industry said, "The government should do more than just revitalize the stock market; it must introduce punitive damages and zero-tolerance criminal penalties at a ruinous level against illegal leading rooms and stock-price manipulators who exploit information asymmetry and shake the foundations of the capital market."