South Korea’s Market Makeover Targets Global Investment Attraction

South Korea’s Financial Supervisory Service (FSS) Governor Lee Bokhyun has announced that the country may lift a short selling ban as early as this year if market conditions improve. The move would likely make the South Korean market more attractive to foreign investors, who have been deterred by the restriction.

Implemented during the pandemic to reduce market volatility, the short selling ban was partially lifted in 2021. It now permits trades for large-cap shares on the Kospi 200 and Kosdaq 150 indexes. However, many of South Korea’s influential retail investors are against a full removal of the restrictions, fearing that it could lead to greater price fluctuations.

Lifting the ban could help South Korea achieve developed-market status in MSCI Inc.’s equity gauge, allowing for a broader pool of foreign funds to invest in the nation’s stocks. Lee stated that the country is “seriously dedicated” to achieving that status, with hopes of doing so next year.

Addressing broader financial risks, Lee acknowledged the potential for defaults on some project-financing loans due to the slump in the South Korean property market. However, he assured that policymakers have implemented measures to cope with this possibility following an unexpected credit crunch last year.

Furthermore, Lee discussed crypto regulation, highlighting the need for prosecuting Terraform Labs’ co-founder Do Kwon in South Korea, following the TerraUSD and Luna collapse. This would set a strong precedent for the market and legal community. Lee emphasized South Korea’s dedication to achieving MSCI’s developed market index status. To accomplish this, the FSS is focusing on protecting minority shareholders and making the market more attractive to foreign investors.

Regarding FX trading, Lee aims to increase the won’s onshore and offshore trading frequency. The FSS will study the onshore interbank FX market before considering steps to enhance offshore trading, despite existing bans.