South Korea Weighs Policy Measures to Address Stock Market Undervaluation

Recent declines in the South Korean stock market have significantly eroded the valuation of domestic equities held by the National Pension Service, drawing attention from the highest levels of government. On October 19, President Lee Jae-myung addressed the issue, stating that the administration is evaluating necessary policy actions to guide the market toward normalization.

Policy Options Under Review, Direct Intervention Ruled Out

Lee indicated that the government will review comprehensive reports soon and take corresponding steps. However, he noted that market corrections following substantial gains are inevitable, and predicting their exact depth is challenging.

Departing from past approaches, he clarified that direct government intervention in financial or securities markets is now neither feasible nor desirable. This highlights a regulatory shift toward greater reliance on market mechanisms.

Core Issue: Lingering Doubts Over Transparency and Fairness

Lee identified persistent negative perceptions regarding market transparency and fairness as a primary cause of the downturn. He argued that this sentiment is a key reason why the South Korean market remains severely undervalued.

“In the stock market, many investors repeatedly tell themselves ‘it won’t fall,’ only to end up trapped,” Lee remarked, warning against irrational behavior and stressing the need to minimize such scenarios.

Evolving Government Role: From Intervener to Overseer

Regarding market outlook, Lee stated that the government is closely monitoring developments. His comments broadly signal that the modern state’s role focuses more on improving institutional foundations and addressing structural concerns than on manipulating prices.

This suggests future efforts may involve:

  • Strengthening disclosure requirements and corporate governance
  • Enhancing perceptions of fairness and cracking down on improper trading
  • Boosting long-term investor confidence through institutional reforms

While specific policy details were not provided, the statement aims to reassure markets and alleviate public anxiety over volatility, particularly regarding valuation pressures faced by long-term asset managers like the National Pension Service.