South Korea’s stock market is experiencing sharp fluctuations in stocks speculated to be tied to politicians, as political turmoil continues following the martial law controversy and the impeachment crisis.
Shares of companies with no clear business connection to prominent politicians are surging and plummeting solely because their major shareholders or executives have regional, academic, or familial ties to influential figures. Even a company’s factory being located in a politician’s hometown can turn it into a politically linked stock.
This speculative investing has become increasingly common. In the past, investors feared that betting on such stocks could make them targets for stock manipulation schemes. However now, many traders see the rise in trading volume and soaring prices as an opportunity for quick profits. Even when investors know that a stock has no real connection to a politician, they still jump in, betting on the momentum.
On Feb. 28, when the S. Korean stock market fell more than 3%—with 836 out of 941 stocks on the benchmark KOSPI index declining—Pyung Hwa Holdings bucked the trend, rising 5% by the end of the day. The stock had surged for eight consecutive sessions, more than doubling from about 3,700 won ($2.53) ten days earlier to over $5.14.
The Korea Exchange had already asked the company the day before whether any undisclosed material developments were driving the price spike. Pyung Hwa Holdings responded that there were no significant disclosures to be made under financial regulations but acknowledged that its stock was being linked to a particular politician.
“Our company has recently been mentioned as being tied to a certain politician, but our business activities—past and present—have no connection to that individual,” the company’s official said.
Pyung Hwa Holdings’ recent rally is widely believed to stem from speculation that it is linked to Employment and Labor Minister Kim Moon-soo. The company’s subsidiary, Pyung Hwa Industrial, manufactures auto parts, and its production facility is located in Kim’s hometown of Yeongcheon, Gyeongsangbuk-do. That alone was enough for some investors to label it a Kim Moon-soo stock.
A financial industry insider who has invested in politically linked stocks acknowledged that most investors do not actually believe Pyung Hwa Holdings has any ties to Kim. “What matters to those buying these stocks is not whether the link is real, but whether trading volume and share prices are rising,” he said.
“It’s tough to make money holding on to Samsung Electronics for years, but with these stocks, if you time it right, you can make tens of percentage points in a single day. That’s why so many people jump in, even knowing what’s going on,” he added.
The problem is that these speculative rallies often lead to sharp reversals, resulting in losses for investors and undermining market stability. Yet authorities have few tools to stop the trend.
Even when companies explicitly deny any connection to a politician, the speculation persists. In 2023, chemical company Duksung saw its shares soar after being rumored as a stock tied to President Yoon Suk-yeol during the presidential election.
The company took the unusual step of issuing a public statement, saying, “Our company has recently been mentioned as being linked to a political figure, but we have no connection to any politicians, past or present.” Despite the clarification, Duksung’s stock continued to see volatile swings.
Another example is e-Starco, which has been speculated to be tied to Democratic Party leader Lee Jae-myung. Late last year, when its stock surged, the company issued a strongly worded statement denying any ties to Lee. “e-Starco has no connection whatsoever to Rep. Lee Jae-myung, including in relation to long-term public housing policies,” it said.
Despite the announcement, e-Starco’s shares have continued to rise and fall whenever Lee receives public attention.
S. Korea’s Financial Supervisory Service (FSS) has vowed to crack down on illegal trading related to politically linked stocks. The agency said it is closely monitoring for market manipulation, including the spread of false or misleading rumors, and will take strict action against violators under a zero-tolerance policy.
The Korea Exchange has also strengthened its oversight. It operates a database system that tracks these stocks by monitoring trading patterns and online discussions linking certain companies to political keywords. While the exchange does not publicly designate politically linked stocks, it internally monitors their movements to detect possible market abuses.
