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South Korea’s stock market has experienced a surge in activity this month, driven by investor excitement over won-based digital currencies following President Lee Jae-myung’s promise to permit crypto assets backed by the national currency.
Stocks associated with the Bank of Korea’s digital currency initiative, such as Kakao Pay and LG CNS, have seen significant gains. Kakao Pay shares more than doubled in value this month, while LG CNS rose almost 70 per cent before pulling back slightly due to profit-taking.
On the Kosdaq junior market, Aton, a fintech security company, saw its stock price soar by 80 per cent, and ME2ON, a mobile game producer, tripled in value. ME2ON’s subsidiary recently launched a dollar-pegged stablecoin for casino games.
The surge in retail investor interest in the potential issuance of won-based stablecoins, combined with expectations of shareholder-friendly policies from the new government, has propelled the benchmark Kospi Composite index to nearly a four-year high. South Korea now leads as the best-performing market in Asia for the first half of the year.
The market rally has prompted retail investors to increase their leverage in pursuit of profits, with outstanding margin loans reaching Won20.5tn ($15bn), according to data from the Korea Financial Investment Association.
The enthusiasm for stocks that could benefit from won-based stablecoins persists, even though the government has yet to announce its cryptocurrency policies. Speculation has been fueled by Lee’s appointment of Kim Yong-beom, a digital token advocate, as his chief policy adviser, and by a parliamentary bill introduced by the ruling party to promote the country’s digital asset industry.
The bill proposes allowing companies with as little as Won500mn in equity capital to issue won-based stablecoins, a move that critics caution could pose systemic risks by opening the floodgates to undercapitalized players.
South Korea boasts one of the most active crypto markets globally, with approximately a fifth of the population trading digital assets. Trading of US dollar-pegged stablecoins in the country reached Won57tn in the first quarter of this year, pressuring the Bank of Korea to expedite preparations for issuing its digital currencies.
Despite strong interest from banks, brokerages, and fintech companies to enter the digital currency business, the government has yet to finalize the issuers and timeline.
Bank of Korea governor Rhee Chang-yong has expressed reservations about non-bank entities issuing won-pegged stablecoins, citing concerns about capital flows and the impact on monetary policy. The central bank plans to consult major commercial banks on conducting a second pilot test of its digital currency.
However, experts caution that some stocks driven by the surge in digital token interest may be overvalued based on fundamentals. They advise investors to be cautious due to the shares’ volatility.
“Won-pegged stablecoins are likely to be introduced, but the extent to which they will boost corporate earnings is uncertain,” said Hwang Sei-woon, senior research fellow at Korea Capital Market Institute.
“Investor expectations appear exaggerated, given the ongoing regulatory uncertainties. Additionally, some of the companies experiencing rapid growth may lack the necessary technologies and infrastructure for stablecoins,” he added.
