Advancing our stock marketFrom Monday, the daily price band for Korean stocks on the main exchange has doubled, allowing prices to go up and down as much as 30 percent. A stock worth 100,000 won ($89.50) could go up as high as 130,000 won or down to 70,000 won. If the price falls by the daily limit for three consecutive days, the stock’s value could come down to 34,000 won. That means higher risk - and profits - when it comes to Korean investments.
The economy is quickly chilling due to the scare of the Middle East Respiratory Syndrome outbreak. The Bank of Korea has cut the base interest rate to an all-time low of 1.5 percent, but it remains unclear how much and how long the easing can help sustain the economy. The external trade front is murky due to the cheap yen and planned rate hike in the United States. Earnings prospects for Korea Inc. have darkened. The increased stock volatility could worsen their outlook.
Still, regulations that can constrain free movement in stock prices need to go. There are no stock price limits in the bourses of advanced markets like the United States and Europe. Only Taiwan and China have smaller limits than Korea. Stock limits can be abused by speculative forces. It is harder for schemers to manipulate prices and steal profits when stocks are allowed to swing freer. Advanced markets have less volatility than Korean bourses because they do not limit price fluctuations.
Still, initial side effects may be inevitable, and authorities should be fully prepared to address these issues. Retail investors who have less access to information and risk control need more protection. Authorities must strengthen disclosure requirements and watch for internal transactions and stock manipulation. Buffers should be discreetly set up to smooth out fast and steep fluctuations. Retail investors should consider shifting to indirect investment to lessen losses and risks. Securities companies should place investors first and offer more accurate investment tips. Investors must take more discretion before investing in rumors and remember that the stakes have gotten higher.
JoongAng Ilbo, June 15, page 30