KOSPI Rebounds More Than 1% After Battle Around 5,000… AI Investment Concerns and Policy Response to Determine Direction

The lower ends of index forecasts that securities firms have begun publishing are based mainly on the price-to-book ratio (PBR). If a KOSPI PBR of around 1 is viewed as a lower bound close to liquidation value, a range of roughly 4,800 to 5,500 could be cited, and some argue the market is already approaching that level. However, the PBR has fallen as low as 0.8 during major crises in the past, so this cannot be treated as a definitive bottom.

There is no single number that can define a bottom for all investors, given differences in their holdings, investment horizons, and capacity to withstand losses. Rather than trying to predict the bottom in advance, it is important to decide how to respond if share prices fall further. Reducing some holdings to secure cash may be an option, but it should be distinguished from selling everything and leaving the market.

There is a difference between an investor who has planned to withstand a decline and one who is unable to sell as losses mount. Investors should review their goals and investment horizon and ask whether they have actively decided to hold or are simply postponing a decision to sell. One account recalled experiencing the subprime crisis shortly after moving into an analyst role in 2006, and said that the feeling of having done nothing during the crisis lingered longer than the falling share prices themselves.

Investors should avoid borrowing or increasing leverage to make up for losses. They need to reassess how much further decline they can withstand and make a plan to adjust their positions if predetermined thresholds are reached. The central view is that recovery in the South Korean stock market may take time, but investors should prepare for opportunities on the assumption that a recovery will come.

Inclusion in a market stabilization fund and inclusion in the MSCI Developed Markets Index can both be important objectives, but authorities need to prioritize what is urgent during a sharp selloff. MSCI inclusion is a medium- to long-term goal, whereas responding to abrupt volatility is an immediate task. The fact that a meeting is scheduled is not enough; the timing and substance of measures that the market can feel are what matter.

The market is a space in which companies and governments participate alongside investors, so there is no reason to rule out government intervention, the argument goes. As in Taiwan, where a stabilization fund was deployed quickly after a meeting, swift and unexpected action during a sharp downturn can affect investor sentiment. Even if a market stabilization fund does not immediately begin buying, it can signal that the government and financial sector are willing to support the market.

Some argue that, beyond measures on margin loans, authorities could review futures trading practices that amplify market volatility, trading involving spot and inverse ETFs, and possible violations of short-selling rules. China’s use of various tools was also cited, including encouraging companies to buy back their own shares, providing low-interest loans, and easing restrictions on institutional fund management. The argument is that policymakers should make clear their priorities between market stability and compliance with international standards, and set out specific measures to address a sharp decline.