Korea to complete process for stock market fund in mid-Oct

South Korea is set to complete the process for a stock market stabilization fund of 10 trillion won ($7 billion) by the middle of this month, to be able to immediately tap into the fund to reduce volatility in the market when necessary.

The Financial Services Commission is in working-level talks with related institutions and working on contract procedures to revitalize the fund, according to the financial authorities on Tuesday. These processes are set to be done around mid-October.

The fund’s investment management committee, led by Kang Shin-woo, a former chief investment officer at sovereign wealth fund Korea Investment Corporation (KIC), will decide on the details of the fund’s use, such as the timing and size.

Personnel from key investors of the fund such as the Korea Development Bank, Mirae Asset Securities Co., Samsung Life Insurance and Busan Bank also joined the fund management body. The committee plans to hold its first meeting on Wednesday.

“We have yet to decide when to inject money into the market although it is correct that we will complete the work for the fund’s establishment by the middle of this month,” Kang said. “The completion of the setup does not mean that we will inject money into the market immediately. We will decide whether to use the money depending on the stock market situation.”

The committee may decide not to use the funds if the local stock market sharply rebounds, he added.

South Korea’s main Kospi has lost 25.8% so far this year despite a 2.5% rebound on Tuesday. Last week, the index fell to its lowest since July 2020.

TO INVEST MAINLY IN ETFs RATHER THAN INDIVIDUAL STOCKS

The fund is set up by financial firms and stock-related institutions to stabilize the market when its tumble sours investor sentiment.

The authorities established a fund of some 10 trillion won in March 2020 when the market lost ground due to the COVID-19 breakout. The fund has not been used as the market significantly bounced back in the following month.

The fund invests in exchange-traded funds (ETFs) for the Kospi 200 Index, a capitalization-weighted index of the 200 largest stocks that make up more than 90% of the total market value of the country’s stock market, and other index funds.

Separately, financial market authorities were known to consider banning short selling on all listed stocks, a measure temporarily taken from March 2020 to May 2021, to further stabilize the market. Currently, short selling is allowed only for a limited number of large caps on the Kospi and the junior Kosdaq markets. 

Write to Hyeong-Gyo Seo at seogyo@hankyung.com
Jongwoo Cheon edited this article.