The Korea Herald


Vote unlikely to affect economy in short term

By Korea Herald

Published : April 10, 2012 - 19:36

    • Link copied

Both governing and opposition parties similarly push for more regulations against conglomerates

The outcome of the general elections is expected to have a minimal impact on the South Korean economy in the short term as there is no substantial difference in key polices between the ruling and opposition parties, analysts said.

If the main opposition Democratic United Party grabs a landslide victory, it will push for more welfare-oriented economic policies while introducing more restrictions on conglomerates which dominate domestic industries from ships to chips.

But the governing Saenuri Party has unveiled a host of welfare election pledges, with its candidates showing a willingness to nurture smaller firms rather than cash-rich chaebol groups ― a stance not so different from that of the opposition parties.

The lawmakers’ preference in policy for small and medium-sized enterprises over conglomerates might put pressure on the benchmark KOSPI stock market where heavyweights such as Samsung Electronics are listed, but analysts said the impact would be only psychological, as it takes time to bring in new legal restrictions on chaebol groups.

The opposition parties are hinting at the revival of the total equity investment ceiling, but analysts said such a policy initiative alone is unlikely to affect Korean behemoths like Samsung, whose market capitalization is nearing 200 trillion won ($175 billion). Samsung and other flagship companies listed on the stock market are keen to tackle its global rivals, rather than a regulatory change at home.

Brokerages said election pledges this time appear to be neutral for major industries. Back in 2008, the election outcome had a tangible impact on three sectors on the stock market: construction (four-river project), education (promotion of English education) and media (a revision to the media law).

Wednesday’s results, in contrast, are less likely to affect many sectors. Telecommunications and distribution sectors, among others, seem vulnerable. Both ruling and opposition parties have promised to cut the fees for mobile services as part of efforts to help out the low- and middle-income earners. They also have the same view that big retailers should be subject to more rigorous regulations in favor of smaller contractors and suppliers.

In the financial sector, candidates’ pledge to introduce taxes on profits stemming from stock trades initially drew some attention, but analysts said such a regulation is unlikely to be introduced in the near future as politicians themselves could suffer a serious backlash in connection with their political funds circulating through borrowed accounts.

The election results may not have a short-term impact on the economy, its long-term influence might be bigger than expected. “As candidates pledge more regulations in the economic sectors, the outcome is feared to affect the stock market in a negative way from a long-term perspective,” said Lee Sang-won, analyst at Hyundai Securities.

By Yang Sung-jin (