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South Korean regulators vow to curb ‘theme shares’ craze

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South Korea’s monetary regulators have vowed to curb short-term hypothesis by retail buyers, as their bets on tech shares gasoline fears of a market bubble.

Retail buyers have made huge bets on themes together with electrical automobile battery supplies, quantum computer systems and superconductors, making the tech-heavy Kosdaq one of many world’s finest performers this yr.

“Their funding patterns are extremely dangerous so we’re cracking down on leveraged shopping for and margin name dangers,” stated Lee Bok-hyun, governor of the Monetary Supervisory Service. “They appear to be just lately lured by excessive volatility, which leaves greater room for sturdy beneficial properties.”

Extra broadly, he stated that small buyers lacked incentives to speculate for the long run. “Retail buyers will not be satisfied of the market’s long-term beneficial properties. We’ll broaden measures to guard minority shareholders and completely implement them to revive market credibility and induce their longer-term investments.”   

With this in thoughts, Lee added that monetary regulators have been stepping up monitoring of the market and would strengthen punishment of these concerned in unfair buying and selling. The FSS has dedicated extra employees to assist with a crackdown on unlawful gross sales actions by brokerages and asset managers and the distribution of false info by funding boutiques and advisory companies. Monetary authorities plan to impose hefty fines and pace up investigations into irregular buying and selling actions.

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“You will need to ferret out unfair buying and selling by establishments, giant shareholders and insiders as a way to regain investor confidence, given the sturdy notion that solely huge establishments and huge shareholders revenue from inventory buying and selling on the expense of retail buyers,” Lee stated.

His feedback mirror regulators’ considerations over Korean retail buyers’ leveraged speculative shopping for of “theme shares”, with margin loans close to historic highs.

Heavy retail shopping for of something associated to electrical automobile batteries has helped the Kosdaq achieve about 20 per cent within the yr so far, greater than double the 8 per cent rise within the benchmark Kospi Composite index.  

“Many retail buyers pursue a ‘high-risk high-return’ technique, spurred on by sensational information and ideas from YouTubers, Telegram [users] and different social media,” stated Lee Seung-hoon, head of analysis at IBK Funding & Securities. “Their funding spans are getting shorter and shorter, swayed by information flows with no basic foundation.”

Analysts at Goldman Sachs have additionally expressed concern over the chance of margin calls on bizarre buyers.

“There are some indicators of overheating within the Kosdaq market when it comes to extremely prolonged valuation, deteriorating earnings outlook, market focus and leveraged actions by retail buyers,” John Kwon and different analysts wrote in a current report.

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Retail buyers’ hopes for technological breakthroughs have pushed shortlived rallies in superconductors, quantum computer systems and vitality storage materials MXene in current weeks, whereas geopolitical information equivalent to Japan’s discharge of radioactive water has sparked heavy retail shopping for of salt and seafood alternate options.

“Corporations with seen knowledge like market dimension and earnings will not be interesting to them anymore as they search beneficial properties of greater than 10 instances their investments,” stated Lee at IBK.

Regardless of the wild swings, analysts anticipate retail flows into the Kosdaq to proceed, given the excessive stage of deposits in brokerage accounts because the pandemic.

Kim Mi-seon, a 56-year-old housewife in Incheon, is a “theme inventory” lover. In August, she made a 20 per cent return on her Won30mn ($22,000) funding in superconductor-related equities.

“As quickly as I heard the information about superconductors, I jumped into the shares, hooked on their potential,” Kim stated. “Generally, it’s higher to only money in on a fad than examine issues exhausting.”

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