Experts warn of stock market cycles, urge investor diversification

South Korea's stock market is experiencing significant volatility, with trading circuit breakers activated frequently, leading to fatigue among individual investors. Experts attribute some of this instability to the market's structure, where two major semiconductor companies, Samsung Electronics and SK Hynix, account for half of the KOSPI's market capitalization. They emphasize that stocks are inherently risky investments and investors must be sufficiently cautious.

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This government has changed the atmosphere of the capital market. Generally, corporate governance is important for stock prices to rise. By pursuing shareholder-friendly policies through amendments to the Commercial Act, it has created a structure that can withstand a downturn better than before.

There is a call for policies that foster long-term investment by institutional investors to stabilize the market. Experts view the current government's proposed capital market reforms, such as amendments to the Commercial Act, positively. Kim Hak-gyun, head of research at Shinhan Investment, believes these changes will create a more resilient market, even in a downturn. Lee Jun-seo, a professor of business administration at Dongguk University, credits government efforts and strong semiconductor performance for the market's recent buoyancy.

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The government's various institutional improvements have revived investor sentiment, revitalizing the entire market, and semiconductor performance has supported the stock market's rise.

However, concerns are rising about the government's perceived encouragement of individual investment and hasty decisions on products like single-stock leveraged funds, which may have exacerbated side effects. Yang Jun-mo, an economics professor at Yonsei University, suggests that government encouragement has led unprepared individual investors to rush into the market. An anonymous expert warns that the current bull market, occurring early in the administration, should not be mistaken for a policy goal, as a bear market could emerge in the latter half of the term.

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The reason individual investors have flocked in is the government's continued encouragement of stock investment. The problem is that unprepared individual investors have rushed into investment.

To enhance market stability, experts advise expanding the base for institutional investment rather than focusing solely on individual investors. Park Chang-kyun, a senior research fellow at the Korea Capital Market Institute, notes that research proves higher institutional investor participation leads to lower volatility. Noh Geun-chang, head of research at Hyundai Motor Securities, suggests that the Korean market is too small for its dominant semiconductor stocks and that diversifying investors through inclusion in developed markets and attracting global fund capital is crucial.

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The stock market is a cycle. It's only been a little over a year since this administration took office, and it could be a bear market in three to four years. It is not wise to be immersed in the current bull market and present it as a policy goal.