[EDITORIALS]No Band-Aids for markets

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[EDITORIALS]No Band-Aids for markets

Concerns about sagging share prices are deepening. The Korea Composite Stock Price Index tumbled to about 650 points, the lowest level so far this year. The Kosdaq market has been hit harder, with its composite index approaching a record low. The Kosdaq market has been virtually moribund, as investors are turning away from the tech-laden market, following a series of financial scams involving companies traded on the market and their poor earnings performances.

What concerns us is that the current doldrums in the local equity markets are not the end and that it is hard to forecast when the markets will hit bottom. A slumping U.S. economy has sent stock markets around the world plunging, and the Korean markets are also moving in tandem. Another negative factor is that the local economic situation is growing unstable. Jitters about a possible war between the United States and Iraq, coupled with inflation worries and slumping exports, have led to a growing economic pessimism that seems here to stay.

The government is mulling digging into its Stock Market Stabilization Fund to prop up the sagging share prices. The government may be eager to stop stock prices from falling ahead of the presidential race in December. Still, an injection of money would have only a limited effect, and government intervention hurts the market's independence.

Many Kosdaq companies, squeezed by severe cash shortages, are rushing to issue new shares to raise much-needed capital, creating a supply glut at a time when investors are leaving the market. Financial authorities have been too soft on irregularities committed by many Kosdaq businesses. Those authorities must adopt stricter rules for canceling the listings of troubled companies and draw up measures to spark consolidation among Kosdaq firms.

The government should try to improve the market environment by preventing illegal transactions and nurture institutional investors as the support of the domestic equity markets. The government should also ease inflation concerns and encourage local companies to increase investment.
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