[Editorial] Block Illegal Acts That Fuel Speculative Overheating in a Volatile Stock Market

KOSPI has been swinging wildly. Just over a year ago, the Korea Composite Stock Price Index (KOSPI) was stuck in the 2,000 range. Since then, the domestic market has changed dramatically, with the index climbing to an unprecedented 8,000. But after the sharp rally, the market has now entered a caution zone. Investors need to be careful in this kind of boom-and-bust, whipsaw market. The greater danger is that illegal acts exploiting public anxiety could spread.
When Lee Chan-jin, Governor of the Financial Supervisory Service (FSS), told the Consumer Risk Response Council to "respond with a high level of vigilance to acts that encourage debt-fueled investing and leverage," he was clearly speaking with this recent market mood in mind.
In fact, investor deposits have already hit an all-time high. They are still holding at a lofty level in the 130 trillion won range. Expectations for further gains in the stock market remain strong, leaving room for additional inflows. Rising investor deposits reflect the market's expectation that stocks will keep climbing.
The problem is that margin loan balances are also rising sharply. Margin loans are the amount investors borrow from securities firms to buy stocks and have not yet repaid. That is why they are seen as a gauge of debt-fueled investing. Even as foreign investors and institutions have been pulling back with large net sales, individual investors have been taking on more loans and buying shares on a net basis.
Of course, investing is a matter of personal freedom. The state cannot interfere in every rational decision made under an individual's own responsibility. Whether one invests with borrowed money or uses leveraged products, a decision based on sufficient information and within one's own capacity to bear the risk is a rational one.
The problem arises when that "rational judgment" is tainted by outside influence. That is why the FSS governor specifically mentioned finfluencers at the Consumer Risk Response Council, citing their role in encouraging unfair trading and providing inappropriate investment information. Taking advantage of the confusion caused by heightened market volatility, some are stoking speculative sentiment among individual investors and profiting by spreading distorted information. Such behavior is shaking the foundations of market order.
A major concern is the conduct of some finfluencers who use their large followings to pump up certain stocks or flood the market with baseless rosy forecasts. For individual investors with limited access to information, such recommendations can have a powerful impact. Authorities must move ahead of time to stop the practice of luring retail investors with unfounded investment tips and urging them to borrow money to buy specific stocks. It is encouraging that the FSS said it would use an artificial intelligence (AI)-based monitoring system to detect illegal activity in real time. But the effort will only be effective if it leads not just to passive detection, but to swift and strict sanctions.
Views differ widely on where the stock market is headed next. The market is swinging under intense tension over whether there will be further gains or a correction. As the KOSPI rises, corporate value increases and the capital market helps drive a virtuous cycle in the economy. A bull market also makes it easier for companies to raise funds and helps households build assets. Even so, this is a time to pay close attention to volatility management, including profit-taking after an overly rapid rise. When an excessive bubble bursts, individual investors are the ones who suffer the most. Financial authorities should keep a close watch for any sales or marketing practices that encourage speculation.