Beware of political investmentsIndependent candidate Ahn Cheol-soo’s shocking announcement that he would drop out of the presidential race after talks to unite with Moon Jae-in of the main opposition Democratic United Party fell apart rocked the presidential campaign trail.
But the surprising turn had a large impact on the stock market as well. The shares of companies related to Ahn Cheol-soo, the software mogul-turned-politician, all fell to their daily limits on Monday after Ahn announced his withdrawal from the race late Friday. In total, 130 billion won ($120 million) in market capital was wiped out in one day.
Shares of AhnLab, Sunny Electronics, Mirae and six other major companies associated with Ahn’s work or family tumbled by the daily limit of 15 percent. A total of 38 so-called Ahn-themed shares fell 5.25 percent combined from Friday.
As a matter of fact, the bubbles made up of politically sensitive shares usually burst soon after the election is over. But the foam on the so-called “Ahn shares” fizzled out earlier than expected due to Ahn’s sudden exit, dealing heavy losses to individual investors who bet on Ahn’s win in the election by putting money in the companies.
Analysts predict the shares could lose more steam as they have gained entirely because of the election and not because of corporate performance.
Despite warnings and regulatory measures from authorities, politically motivated bets are still rampant on the stock market. After Ahn-related shares fell sharply, other stocks associated with remaining contenders Park Geun-hye of the ruling party and Moon are on the rise.
It is a pity that the outdated practice of betting on presidential candidates remains in investors’ playbooks. Investors are entirely misguided when they assert that companies will benefit when a certain candidate becomes president. Politically themed investing won’t go away so long as this kind of misconception guides investment on the stock market.
Financial authorities should step up supervision and regulation so that investors do not fall prey to rumors, especially those related to the nation’s politics. And at the same time, investors themselves should be vigilant. It is their money at stake, after all, and the bursting of the Ahn bubble is proof of the tremendous risk involved.