Sidecar Use in Korean Stock Markets Hits Record

“What was the name of the most popular car in Yeouido (Seoul`s main financial district) this year? The sidecar.”

This is a popular joke among staff and customers at the Korean Exchange in Seoul.

The main stock index has been on a rollercoaster ride as Korea’s benchmark KOSPI index surged to a yearly high of 1888.88 in mid-May but plunged to 938.75 Oct. 24, leading to the frequent use of sidecars this year.

A sidecar temporarily suspends stock trading to alleviate shocks from market turbulence. The number of sidecars activated on the KOSPI was 26 and that on the KOSDAQ 19 this year, after both markets each had just four last year.

Rumors of an imminent crisis in Korea floated around among investors. The strike at the Korea Cargo Transport Workers Union in June dealt a hard blow to related stocks.

Also sweeping through Korea was talk of “black September,” with foreign media citing rumors of an impending financial crisis due to massive capital flight by foreign investors. The scenario never materialized, however.

An anonymous user on a Web debate room stirred huge controversy as he forecast the KOSPI would fall below 500. As of yesterday, the index closed at 1,175, 91. This shows the prevalence of many unfounded rumors could cause unnecessary panic and damage to the country.

jefflee@donga.com