The Korean government launches a 100 trillion won plan to stabilize the market! Protecting Korean stocks and safeguarding corporate financing lifelines

South Korea’s financial markets recently experienced their most severe crash in history due to the rapid deterioration of Middle Eastern tensions. Facing panic selling and a sharp decline in the Korean won, the Korean government responded swiftly, announcing the active deployment of a market stabilization fund exceeding 100 trillion won to inject liquidity and stabilize the financial markets, preventing further escalation of the crisis.
(Background recap: Dark week for Asian stocks! Korea restricts financing accounts, Taiwan’s traders lament, Japan’s NISA investors suffer from stock market turmoil)
(Additional context: Young Koreans are no longer investing in cryptocurrencies, but are rushing to buy Samsung and SK Hynix! Copying Taiwan’s “TSMC faith”?)

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• Multiple adverse factors hit simultaneously
• 100 trillion won fund allocation: targeted market risk mitigation
• Strategic considerations: maintaining international status and market confidence

In response to the global financial turmoil caused by the worsening Middle Eastern situation, Korea’s financial authorities announced on March 4th the activation of a market stabilization plan exceeding 100 trillion won. Due to rising oil prices sparking inflation concerns, Korean bond yields surged sharply, and the corporate financing environment faced severe challenges. To prevent panic from spreading further, the government decided to inject large-scale funds to ensure stability in bonds, short-term funding, and the real estate market.

Multiple adverse factors hit simultaneously

Recently, escalating Middle Eastern conflicts have not only driven up international oil prices but also triggered inflation fears. With investor confidence frozen, South Korean bond yields soared. Data shows that the yield on AA- rated 3-year corporate bonds reached 3.8% annual interest on the 4th, a jump of 0.163 percentage points in just two trading days.

Short-term interest rate volatility has directly caused difficulties for companies issuing bonds and other financing activities. Financial experts worry that if chaos persists, non-strong companies may face serious liquidity crises. Additionally, due to a “deposit migration” phenomenon where funds flow into the stock market, traditional banking and related financial institutions that support the bond market are experiencing deposit outflows, weakening bond purchasing power and further disrupting bond supply and demand.

Furthermore, amid the Middle Eastern conflict, risk aversion has rapidly increased among investors. Foreign capital has massively withdrawn from Korean stocks, and leveraged positions have been forcibly liquidated, creating a vicious cycle. The Korean stock market, which had surged earlier this year due to the AI boom, has suddenly become a disaster zone. Leading stocks like Samsung Electronics and SK Hynix led the decline, with the KOSPI index dropping over 12% in a single day, triggering multiple circuit breakers and intensifying market turmoil.

100 trillion won fund allocation: targeted market risk mitigation

To address the crisis, Korea’s Financial Services Commission Chairman Lee Eung-kyu held an emergency meeting, instructing the active deployment of a “100 trillion won +α” market stabilization program. The large fund is mainly allocated into three major areas:

2. Bond and short-term funding markets (~37.6 trillion won): including a 20 trillion won bond market stabilization fund and a 10 trillion won plan to purchase corporate bonds and commercial paper (CP), aimed at directly alleviating corporate financing pressures.
3. Real estate project financing (PF) stabilization (~60.9 trillion won): providing ample funds to the currently high-risk real estate financing market to ensure a “soft landing.”
4. Stock market stabilization fund (under discussion): in response to the sharp stock market decline, authorities are considering deploying the 10.7 trillion won securities market stabilization fund established during the COVID-19 pandemic in 2020. If activated, this would be the first time since the 2008 global financial crisis.

Strategic considerations: maintaining international status and market confidence

Despite the market turbulence, Korean authorities are currently not considering measures such as banning short selling. The main reason is that banning short selling could negatively impact Korea’s efforts to join the MSCI developed markets index.

In summary, the Korean government is adopting a “dual approach”: on one hand, providing liquidity of over 100 trillion won to stabilize the bond and real estate markets; on the other hand, closely monitoring the spreads between government bonds and corporate bonds to prevent systemic risks. In the midst of ongoing international chaos, this “100 trillion won” defense effort will be crucial for Korea’s economy to weather the winter safely.