"Where have Korea's financial regulators been all this time?"
A veteran anchor at U.S. business network CNBC leveled sharp criticism at South Korea's financial regulators after the country's stock market plunged. He said authorities took little action while retail investors borrowed heavily to buy shares and piled into Samsung Electronics and SK hynix, only to stress investor protection after the market collapsed.
CNBC Anchor: 'Closing the Barn Door After the Horse Has Gone'
Steve Sedgwick, an anchor at CNBC International, delivered the remarks on the 15th during a broadcast covering the global selloff in artificial intelligence-related stocks and the sharp drop in Korean equities, as he reported news of an emergency review meeting held by Korean regulators.
When breaking news came in during the program that South Korea's Financial Services Commission had called for measures to stabilize the market and protect investors, Sedgwick responded in a forceful tone.
He said he had a word for Korea's financial regulators, asking whether this was not a case of closing the barn door after the horse has gone, and where they had been when Korean investors were borrowing to invest at unprecedented levels.
He went on to ask what regulators had been doing while investors crowded into just two stocks, Samsung Electronics and SK hynix, noting that the two companies account for roughly 50% of the KOSPI. Such measures should have been taken months ago, he said.
He took particular issue with the scale of leverage allowed to investors betting on gains in the two stocks. Leverage involves using borrowed funds to increase the size of an investment, which can magnify losses when share prices fall.
Sedgwick said, however, that he did not see the valuations of Samsung Electronics and SK hynix themselves as excessive.
He said the valuations of the two companies are considerably lower than those of their U.S. peers, and that while their share prices were falling 10% to 11%, they were not expensive stocks by any measure.
Sedgwick worked as a trader in financial markets for about 11 years and now covers global equities and macroeconomic issues at CNBC International.
KOSPI Plunges 21% as Samsung Electronics, SK hynix Lead Losses
The criticism came as South Korean stocks fell sharply over a short period. The KOSPI dropped 21% between the 6th and the 15th. Over the same period, Samsung Electronics and SK hynix, the market's two largest companies by market capitalization, fell 24% and 31% respectively, leading the index lower.
On the 15th, the KOSPI slipped below the 5,500 level during the session, and investor anxiety spread quickly. The KOSPI 200 Volatility Index, known as Korea's fear gauge, also surged. Its rate of increase was the third highest on record, and the index closed at its highest level in about a month and a half.
The strain is mounting in particular on retail investors who borrowed money to buy stocks. If share prices fall below a certain level, brokerages can forcibly sell shares pledged as collateral in what is known as a margin call liquidation.
Such forced sales exceeded 89.3 billion won on the 14th, the highest in more than two months. There was speculation that the figure may have grown further on the 15th.
On online investor forums, some said they had missed the point at which they should have cut their losses, while others voiced concern about further declines.
Regulators Hold Emergency Meeting, Urge Restraint on Credit Lending
The Financial Services Commission held an emergency review meeting on stock market conditions on the 15th, a day of steep losses, at the Government Complex Seoul, chaired by FSC Chairman Lee Eok-won. Officials from related agencies including the Financial Supervisory Service and the Korea Exchange, along with market experts, attended to review domestic market trends and the flow of funds from foreign and institutional investors.
Participants said expectations of rising global interest rates, uncertainty over investment and returns in the AI chip industry, and higher international oil prices had increased recent market volatility. They also said the market had overreacted in part, in terms of both the pace of the decline and fund flows.
They cited solid earnings in major industries such as semiconductors, defense and shipbuilding, as well as sound economic fundamentals including foreign exchange reserves, the current account balance and the health of financial institutions.
Lee asked officials to remain alert even to small swings in volatility and to respond actively to protect financial market stability and investors.
He added that investment relying on excessive debt and credit is risky, and instructed financial companies to refrain from indiscriminate credit lending and to focus on customer protection and risk management.
Regulators said they would apply a zero-tolerance approach to market disruption, including the spread of false rumors exploiting market jitters, price manipulation and illegal short selling.
They also agreed to closely monitor domestic and overseas market trends and investor fund flows, and to prepare to activate contingency plans swiftly if necessary.