Political shares suffered a defeat

Investors in so-called politically-themed stocks that were directly or indirectly connected to the recent presidential election suffered heavy losses as values dropped significantly.

The Financial Services Commission said Tuesday those retail investors lost the most as 83 percent or 186 out of the so-called 224 politically-themed stocks that were studied dropped compared to a year ago. On average, each investor lost 617,000 won ($552).

In fact, retail investors were the most active group trading politically-themed stocks since May 9, 2016. Until election night, retail investors traded nearly 74 billion shares of such companies, which accounts for 96.6 percent of the shares while foreign investors accounted for only 2.9 percent and institutional investors 0.2 percent.

Although this is a drop from 97.9 percent during the presidential election five years ago, retail investors remained the most active participants that were easily swayed into stock investments.

The FSC report noted that retail investors net purchased these stocks when the value of the stocks rose consistently.

These stocks had some connection to presidential candidates, whether the candidate previously worked for the company or a family member was an employee. For example, computer virus development company Ahn Lab, which was founded by presidential candidate Ahn Cheol-soo, and other companies were seen benefiting from the candidate’s policies without a direct connection.

The FSC report found that in this election, stocks linked to politics were mostly small and midsize caps. The average assets of these companies listed on the Kospi were 271 billion won, which is only 11.2 percent of assets of other companies listed on the bourse. The assets of political-theme companies on the Kosdaq had an average asset of 87.9 percent, which is half of other companies listed on the secondary market.

It’s also interesting that the number of shares that hit their daily upper limits for two consecutive trading days fell from 23 during the 2012 election to 14 this year.

The FSC, however, said when compared to the previous election five years ago, the fluctuation of these stocks was less thanks to the strengthened monitoring by financial authorities.

On average, the fluctuation of these shares during the recent election was 25 percent; it was 62.2 percent five years ago.

In hopes of regulating speculations of such shares, the FSC created a task force comprising officials from the Financial Supervisory Service, the prosecutors’ office and stock market operator Korea Exchange.

“Although the election is over, we plan on continuing our monitoring of such stocks,” said Yoo Jae-hoon, head of the capital market investigation team at the FSC. “Investors should take notice that they may suffer loss on their investments as shares that show unusual spike when an issue has arisen could see a sharp drop after that issue diminishes.”

BY LEE HO-JEONG [lee.hojeong@joongang.co.kr]