“Capture the votes of 1,400 million individual investors” Capital market advancement fading amid a flurry of general election pledges

Political pledges target minority shareholders, which have increased by nearly 2.5 times compared to before COVID-19
A representative example is the pledge to revise the Commercial Act to be shareholder-friendly
After the election, there should not be a patronizing policy of ‘I don’t know’, as it may limit the growth of the capital market

Ahead of the general election, policies targeting individual investors, who have surged through the COVID-19 pandemic, are being poured out. Representative examples include the pledge to amend the commercial law to prevent management from making decisions that go against the interests of minority shareholders, or the government’s ban on short selling and the push to abolish the gold investment tax. However, although it is encouraging that the political world is discussing various policies for individual investors, it is pointed out that self-interested economic policies conscious of votes will hinder the advancement of the capital market and will inevitably have a negative impact on domestic investors and companies in the mid- to long-term.

Politicians rush to announce policies tailored to individual investors

According to the political world on the 16th, the People Power Party is preparing a general election policy pledge for minority shareholders. The New Reform Party, led by former People Power Party leader Lee Jun-seok, is also known to include policies focused on individual investors among its pledges to be announced in the future.

For example, on the 15th, the New Reform Party announced eight capital market-related policy pledges, including legislation to protect minority shareholders, as its third platform policy. In particular, it revised the Commercial Act to stipulate directors’ duty of loyalty to all shareholders and made a pledge to require a public offer of 100% of shares when taking over management rights of the company. The purpose is to include shareholders’ interests in the director’s duty of loyalty clause to prevent management from making decisions that run counter to the interests of minority shareholders.

Kim Yong-nam, Chairman of the Strategic Planning Committee of the New Reform Party, held a press conference at the National Assembly Communication Hall this morning and said, “The ‘Korea discount’, a phenomenon of undervaluation of Korean stocks, is not due to geopolitical risks on the Korean Peninsula, but is due to companies mistreating and ignoring minority shareholders excluding controlling shareholders. “It is because of a faulty governance structure,” he said, and pledged, “The New Reform Party will open the era of KOSPI Index 5000 and KOSDAQ Index 2000 within the term of the 22nd National Assembly through reform legislation.”

The reason why individual investors and minority shareholders are particularly emphasized in political pledges appears to be because their numbers are rapidly increasing. According to the Korea Securities Depository, the number of domestic individual investors increased from 5.61 million in 2018 to 14.41 million in 2022. This is more than the entire population of Gyeonggi-do (13.62 million people) as of the end of last year, and in terms of the number of accounts, it has already exceeded the domestic population as of November last year (68.7 million).

Side effects of populist policies for general elections

However, the government and the ruling party are being criticized for overusing populism as they point out the Korea Discount and make promises related to individual investors. In particular, the opposition Democratic Party of Korea criticized the government for implementing an impromptu ‘vote-pullist tax cut policy’ without consultation with the National Assembly, being conscious of the general election vote.

A Democratic Party official said, “President Yoon Seok-yeol’s statement about pushing for the abolition of the financial investment income tax revealed that the government is once again conscious of the votes of individual investors following the complete ban on short selling and the relaxation of stock capital gains tax for major shareholders.” “It’s obvious,” he pointed out. An official from the People’s Solidarity for Participatory Democracy’s cooperative secretariat also said, “A budget plan close to a reduction was passed in a situation where there is a record-breaking tax revenue shortfall.” .

Many people are concerned about the mid- to long-term side effects of the populist policies of politicians in the financial market. The industry points out that the previously implemented total ban on short selling will have more than one aftereffect on the financial market. An official in the financial investment industry said, “A complete ban on short selling can prevent problems such as illegal unborrowed short selling by foreign IBs from occurring again, but in the capital market as a whole, it is a measure that runs counter to global standards.” He added, “This will have a negative impact on inclusion in the MCSI developed country index. “It will prevent the advancement of the financial market by accelerating the departure of foreign and institutional investors,” he pointed out.

The decisions of the government and financial authorities do not end with simply undermining market principles. Limited capital market growth has a negative impact on the performance of domestic investors and corporate growth, which ultimately threatens the future of the country and the lives of the next generation. This is a time when consistent and effective policies are needed rather than policies aimed at chasing votes.