Bubble pop!

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Bubble pop!

The Kospi has gone up 25 times compared to its starting base in 1980. The secondary Kosdaq index hovers 16 percent lower than its inception level in July 1996. The market was beyond reach for most ventures and innovation start-ups, as it takes 12.9 years on average to join the Kosdaq. The market is susceptible to price manipulation and other irregularities because of its relatively smaller market capitalization and cheaper prices. It mostly serves as a speculative playing field for retail investors who make up 90 percent of trades.

The latest package of measures from the Financial Services Commission to upgrade the secondary market aims to fix its weaknesses. The financial authority will arrange a fund that can be tax-deductible up to 3 million won ($2,800). It will establish a broader index combining the Kospi and Kosdaq to pull in pension funds and other big institutional players. A 300 billion won fund also will be created for Kosdaq members.

Listing requirements also will be eased. A company with proven potential will be able to apply for membership even if it does not meet capital or profit eligibility.

The government measures will help improve market conditions in the short-term. The Kosdaq index finished Thursday 2.1 percent higher at 852.51, the first time above the 850 mark in 15 years and nine months.

But eased entry alone won’t just bring in Google- or Alibaba-wannabes. Some companies with big names but bad financial flow can also squeeze in. Despite the greater risks, authorities paid less attention to protect investors.

It is understandable that authorities want to draw capital to the equity market from speculative real estate and cryptocurrency assets. But we cannot afford another bursting Kosdaq bubble. Pension funds must not be pressured by the administration to risk their public assets. The government’s role must stop at improving infrastructure and raising investment appeal.

JoongAng Ilbo, Jan. 12, Page 30
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