Korea’s financial authorities said on Oct. 29 that the government will raise funds worth more than 500 billion won (US$439 million) from securities related organizations to stabilize the capital market.
The Financial Services Commission (FSC) held a financial market inspection meeting presided over by Vice Chairman Kim Yong-beom at the Government Complex in Seoul to examine the recent decline in stock markets and the outflow of foreign capital.
The 500 billion won that the government will raise includes the Kosdaq scale-up fund.
"We will expand the size of the Kosdaq scale-up fund, which we initially planned to raise 200 billion won this year, to 300 billion won this year and invest in undervalued Kosdaq companies from early November," Kim said in a statement.
The fund was originally scheduled to generate 200 billion won this year and 100 billion won next year. The government plans to finish the funding process and begin purchasing stocks in November as the fund has already raised 185 billion won.
Kim also said, "Considering the market situation, we will additionally raise at least 200 billion won worth of funds to invest in the KOSPI and KOSDAQ markets."
"In order to increase confidence in the Korean capital market, we will actively respond to unfair practices," Kim said.
"We will punish illegal short selling, which can be linked to unfair practices such as price manipulation, without exception, and we will seek to revise the capital market law to create criminal penalties and fines in addition to existing fines against illegal short sellers," he said.
"The FSC's Capital Market Research Group, the Financial Supervisory Service and the Korea Exchange will closely cooperate with each other in order to crack down on unfair trading practices and the spread of false information that disrupt the market order and increase volatility," Kim added.
"Although the economic growth outlook has recently been revised down and concerns over the global economy are growing, the Korean economy is still judged to have solid fundamentals," Kim said.
"Even though operating profits of listed Korean companies have continued to increase, the Korean stock market's price-to-book ratio (PBR) is much lower than that of foreign markets, so there will not be much adjustment in the future," he said.
"As there has been no market overshooting driven by liquidity and the Korean stock market fundamentals are stronger than any other country, this adjustment could be an opportunity for the Korean stock market," Kim added.
Meanwhile, Kim also ruled out the possibility of a full-fledged "sell Korea" in which foreign capital flows out of the domestic capital market.
Foreign investors net sold Korean stocks worth 6.7 trillion won this year, with October sales amounting to 4.5 trillion won, increasing the stock market`s fluctuations, he said.
He also said that the domestic bond market recorded a net inflow of foreign capital this year before switching to a net outflow in September. “However, the amount of net outflow of bonds is small compared to the outflows during the 2016 Brexit referendum and the North's nuclear test last year.
According to the Financial Services Commission, foreign bond funds withdrew 9.7 trillion won from June to December 2016, following the aftermath of Brexit, and 7.8 trillion won from August to December 2017 when the market fluctuated due to North Korea's nuclear tests.