Hostage to political gamblers

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Hostage to political gamblers

Stocks associated with figures in Korea’s political circle are heating up as the nation enters election year. The stock price of AhnLab exploded from 20,000 won ($17.38) last year to 160,000 won as rumors that its founder, Ahn Cheol-soo, may run for mayor last fall have been eclipsed by speculation that he may run for president ahead of the elections this December.

The mushrooming stock price has inflated the market capitalization of the antivirus software producer to over 1.5 trillion won, making it one of the largest-cap stocks on the tech-heavy Kosdaq.

Additionally, shares of EG Corporation in which Park Ji-man holds a controlling stake, have quadrupled in the space of a month. Park is the brother of Park Geun-hye, who was recently named to spearhead reform at the ruling party and who may run for president.

Politically themed shares have also become the most exchanged equities on the over-the-counter Kosdaq market. Securities analysts find this trend frustrating, arguing that the gains bear no relation to the company’s fundamentals. But this trend is likely to grow, magnifying its impact on the Seoul bourse throughout the year.

It has become something of a custom here to see shares associated with presidential candidates fluctuate wildly in price in an election year despite the risk of individual investors losing a fortune when the bubble bursts. The stock market is ruled by speculation and rumor, but the frenzy over shares that may spike by virtue of their relationship to a rising political star underscores the fragility of the domestic bourse.

So while speculative forces may be targeting the shares - there is scant other explanation for the abnormal overheating of technology shares at the moment, for example - but individual investors should not be fooled into playing along. Ultimately, they will have to pay the price for their investment decisions.

Authorities at the stock exchange and the Financial Supervisory Service should do more to protect individual investors, who pay little attention to disclosures from the companies based on the logic that there is no hidden reason for their corporate stock gains.

Authorities must strengthen their oversight and suspend trading or restrain credit in the case of overheated shares. They also must investigate any hint of foul play, such as networks of buyers working together in unfair schemes to control prices. The nation has two major elections this year, including the election of new legislators in April, and the Seoul bourse must not be held hostage to political gamblers.
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