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(EDITORIAL from Korea Times on Oct. 30)

Editorials from Korean Dailies 07:30 October 30, 2018

How to stabilize market
: It is urgent to improve economic fundamentals

The government has come up with a plan to set up an investment fund worth 500 billion won ($438.4 million) to stabilize local stock markets. The plan came Monday after the markets continued to tumble this month.

Yet no one can be sure that the creation of the fund is good enough to stem the slide of share prices. Investors snubbed the plan as the benchmark Korea Composite Stock Price Index (KOSPI) dropped by 1.53 percent to 1,996.05 points. It marked the first time in 22 months that the index fell below the 2,000-point mark. The tech-heavy Kosdaq market was far worse because it lost 5.3 percent.

The downward march could be attributed to the global equity market volatility amid an escalating trade war between Washington and Beijing and higher interest rates in the U.S. Although these external factors are taken into consideration, Korea's market turbulence is surprising as its share prices dropped more steeply and faster than any other exchanges around the world.

This explains why the financial authorities should make all-out efforts to regain market stability. Throughout this month the KOSPI lost about 15 percent and the Kosdaq index nosedived nearly 25 percent. Worse, the markets are feared to go on a downward spiral because pessimism prevails over stock investment.

In this sense, the planned establishment of the investment fund is seen only as an expedient measure. How can the government bring the turmoil under control by injecting a meager 500 billion won into the local bourses? It is as if policymakers are trying to show they are doing something in order to avoid any criticism for doing nothing in the face of a looming crisis.

Few believe such a measure will work, considering foreign investors' selling streak. Net selling of Korean stocks by foreign investors has stood at 6.7 trillion won so far this year. Their "sell Korea" spree was evident in October by dumping more than 4.5 trillion won. In the bond market, foreigners have also become sellers since last month although the amount was not big enough to cause concern.

Now, we have to look at why foreign investors are selling local stocks. The answer is simply: The Korean stock markets are losing their attractiveness. Most of all, listed companies are reporting worse-than-expected performances. This means they continue to lose their profitability in the face of rising labor and other production costs and falling competitiveness in terms of price and quality.

To add insult to injury, the Korean economy is rapidly losing steam. Economic research institutes at home and abroad have continued to revise down the nation's economic growth projection for this year and the next. It seems difficult for the government to meet its growth target of 2.9 percent.

Now it is urgent for the authorities to take more radical measures to regain investor confidence. This is easier said than done. But the Moon administration should do its best to make the local markets attractive again by improving economic fundamentals, pushing for structural reforms and helping corporations hone their competitiveness.

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