Overhauling South Korea’s Market to Attract Investments

The Governor of South Korea’s Financial Supervisory Service (FSS), Lee Bokhyun, recently revealed that the country could lift its short-selling ban later this year, depending on market conditions. This policy change could significantly impact foreign investors’ interest in the South Korean market, which the ban has hampered.

Market volatility sparks restrictions

In response to the pandemic-induced market volatility, a short-selling ban was put in place and lifted in 2021, allowing trading for large-cap shares on the Kospi 200 and Kosdaq 150 indexes. Despite the partial lift, several South Korea’s prominent retail investors hesitate to obliterate the restrictions. Their concerns stem from the possibility of increased price fluctuations.

Removing the ban may aid South Korea in obtaining developed-market status in MSCI Inc.’s equity gauge, resulting in a more extensive range of foreign funds investing in the country’s stocks. Lee expressed a solid commitment to this goal and is optimistic about achieving it by next year.

Lee recognized that the South Korean property market slump could lead to defaults on certain project-financing loans, posing broader financial risks. Nevertheless, he reassured policymakers that measures were in place to manage this potential scenario, which had been put in place after an unforeseen credit crunch occurred last year.

Crypto crackdown gains momentum

In addition, Lee touched upon crypto regulation and emphasized the importance of holding Terraform Labs’ co-founder, Do Kwon, accountable for the collapse of TerraUSD and Luna. This would be a significant example for the market and the legal sector. Lee also highlighted South Korea’s commitment to achieving MSCI’s developed market index status, which involves the Financial Supervisory Service (FSS) prioritizing the safeguarding of minority shareholders and increasing the appeal of the market to foreign investors.

Lee’s objective in FX trading is to raise the trading frequency of the won in both onshore and offshore markets. Although there are prohibitions, the FSS will analyze the onshore interbank FX market first and then assess options for boosting offshore trading.

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