(EDITORIAL from Korea JoongAng Daily on May 12)

Stock market mustn't be reduced to casino for speculators The rally in Korean equities has become nothing short of breathtaking. The Kospi, which began the year at the 4,300 level, is now closing in on 8,000. Even allowing for the semiconductor supercycle ignited by AI, the pace of the ascent is unnervingly steep. The market capitalization of Korean stocks has surpassed 7,000 trillion won, overtaking even Britain. Yet the Financial Supervisory Service (FSS), after reviewing the market yesterday, concluded that it was "difficult to view the market as overheated." It noted that margin lending had increased, but amounted to just 0.58 percent of market capitalization — the lowest level in the past five years. Still, warning lights are flashing across the market. The clearest signs are the explosion in debt-fueled investing and the swelling pipeline of short-selling positions. Outstanding margin loans have recently ballooned to around 36 trillion won. Meanwhile, net short-selling balances have climbed to roughly 28 trillion won, while stock lending balances — a leading indicator of future short-selling activity — have surged to 180 trillion won. An unprecedented "long-short" battle between bulls and bears is underway. The Buffett Indicator, which measures market capitalization against GDP, has soared well past 200 percent, putting Korea on par with the United States. By the standards of legendary investor Warren Buffett, the market has entered dangerous territory. Another sign of excess is the frenzy surrounding leveraged exchange-traded funds (ETFs). This year, turnover in leveraged ETFs betting on further gains and inverse ETFs wagering on declines has spiked to as high as 70 percent. Investors are effectively engaging in ultra-short-term trading multiple times a day. To make matters worse, the government is preparing to allow high-multiple leveraged products tied to Samsung Electronics and SK hynix. This is no time to pour fuel on an already overheated market. Buffett recently warned that "the gambling frenzy" in global markets had reached its peak. Korea's stock market, which has nearly tripled over the past year, is plainly no exception. The greatest concern is the National Pension Service (NPS). With the recent market surge, the pension fund's allocation to domestic equities is estimated to have exceeded its target ceiling by more than 10 percentage points. If the NPS moves to rebalance its portfolio, the resulting selloff could become a major drag on the market — amplifying systemic risk in the process. Worse still, if the semiconductor super-cycle falters and the market tumbles, the retirement savings of ordinary citizens could also be put at risk. The stock market must not be reduced to a casino for speculators. Rather than cheering ever-higher stock prices, policy makers should place far greater emphasis on managing risk.(END)