The Korean government has decided to actively operate its 100 trillion won ($70 billion) market stabilization program in response to financial market volatility caused by the Middle East crisis, raising the possibility of activating the 10 trillion won stock market stabilization fund.
Financial Services Commission Chairman Lee Eok-won convened an emergency financial market review meeting on the 4th and ordered the active deployment of the "100 trillion won-plus" market stabilization program should excessive market volatility occur. The program Lee referenced includes the 40 trillion won bond market stabilization fund and funds related to the soft landing of real estate project financing.
Although Lee did not mention the stock stabilization fund, observers note that as the only direct tool available to financial authorities for defending the stock market, its activation would inevitably be considered if markets plunge further. A Financial Services Commission official said, "The KOSPI is still above 5,000," but added that "(whether to activate the stock stabilization fund) requires close monitoring of market trends."
The current stock stabilization fund was established at 10.76 trillion won during the COVID-19 pandemic in March 2020 and has maintained that structure. Twenty-three state-run banks and financial companies contributed 10 trillion won, while four related institutions including the Korea Exchange contributed 760 billion won. The fund operates on a "capital call" basis, where investment target amounts are pre-committed and portions are deployed as needed. It can purchase representative index products including KOSPI 200 exchange-traded funds to help stabilize markets.
However, there is strong sentiment that the fund—effectively the government's last resort and an artificial market intervention—should not be deployed prematurely. The fund has not been used in the 18 years since the 2008 global financial crisis, when 515 billion won was deployed. Moreover, at just 0.25% of KOSPI's approximately 4,280 trillion won market capitalization, the fund would need significant expansion to have meaningful impact.
Additionally, authorities announced they would provide new funding through a 13.3 trillion won financial support program for companies affected by the Middle East situation and extend all existing loans and guarantees for one year.
Meanwhile, participants in the emergency meeting agreed that a sustained market decline is unlikely and that rational judgment based on confidence in the Korean economy is more important than excessive anxiety. Chairman Lee stated, "We will closely monitor market order disruptions and fake news that may emerge amid heightened stock market volatility, and will take zero-tolerance enforcement action upon detection."