The KOSPI closed at 5,648.79 on November 3, 2026, down 39.81% from its intraday record of 9,385.59 on June 19. The stock market stabilization fund is once again attracting attention as a tool the government could consider to steady the market.
The index’s steep fall in just over four months has heightened investor anxiety and focused attention on whether the government might intervene.
Government leaves open the possibility of activating the stabilization fund
At a press briefing on October 16, Deputy Prime Minister and Minister of Economy and Finance Lee Hyeong-il was asked about activating the stabilization fund and temporarily suspending short selling. He said the government was monitoring market conditions continuously and preparing to take stabilization measures if needed.
President Lee Jae-myung also said on October 19 that he would review policies to normalize the stock market and consider necessary measures, but he took a cautious stance toward direct government intervention in financial markets.
How the stock market stabilization fund works and its history in South Korea
The stock market stabilization fund is a policy tool that uses money jointly contributed by financial companies and securities-related institutions to buy index products such as ETFs when share prices fall sharply, easing market volatility and selling pressure.
Although government-led, it differs from the government directly spending public funds to buy shares in specific companies. Financial institutions pledge contributions, then pay in the money needed for the fund’s operations in stages.
In South Korea, a stabilization fund of about 4.85 trillion won was first established in 1990. Funds of 400 billion won in 2003 and about 515 billion won in 2008 were also set up and used to inject money into the market.
Past stabilization funds have had mixed results
Comparing market trends in 1990, 2003 and 2008, when stabilization funds were actually deployed, shows that large-scale injections of money do not necessarily produce a rebound in share prices.
In 1990, the market remained weak after the stabilization fund was deployed, while share prices recovered over time in 2003 and 2008. This suggests the fund is less a means of directly lifting share prices than a way to ease intense selling pressure and give the market time to recover.
An analysis by the Korea Institute of Finance of South Korea’s stock market stabilization funds found some evidence that they eased investors’ short-term anxiety, but concluded that their lasting effects on share prices and liquidity were limited.
In 2003, policy measures addressing the credit card crisis coincided with the stock market’s recovery; in 2008, large-scale U.S. measures to stabilize financial markets did the same. The funds’ buying effect therefore needs to be considered alongside the impact of other policies.
Hong Kong and China: Market interventions, different outcomes
During the 1998 Asian financial crisis, the Hong Kong government drew about HK$118 billion from its foreign exchange fund to buy shares in response to speculative trading and financial market turmoil. In 1999, it introduced a tracker fund following the Hang Seng Index and recovered its investment by gradually returning its shares to the market.
The Hong Kong government announced that by April 2001 it had recovered about HK$119 billion through sales via the tracker fund, dividends and other proceeds. It was a positive example of a government not only making large-scale purchases but also planning an exit that recovered its investment while limiting the shock to the market.
In China, after the stock market plunged in 2015, the government took forceful steps to stabilize it, including share purchases through state-owned financial institutions and trading restrictions. But after a brief rebound, volatility persisted, and the market plunged again in early 2016.
With the burden of margin trading accumulated during the sharp rise in share prices and concerns about an economic slowdown still unresolved, government intervention alone could not reverse the decline. The episode shows that even large-scale buying does not necessarily resolve a market’s structural problems.
Bank of Japan’s ETFs could take about 43 years to sell
Recovering money put into the market is another important challenge. The Bank of Japan’s ETF holdings illustrate the long-term burden that large-scale share-buying policies can leave behind.
The Bank of Japan stopped making new purchases of ETFs acquired under its large-scale monetary easing program in March 2024 and began selling its holdings in 2026. Last October, it announced that from January 2027 it would increase annual sales from about ¥330 billion to ¥860 billion on a book-value basis.
Even at that faster pace, it is estimated to take about 43 years to sell all its ETF holdings.
Unlike South Korea’s stock market stabilization funds, the Bank of Japan’s ETF purchases were intended to ease monetary conditions. Even so, they show how difficult it is to dispose of large shareholdings while minimizing the impact on the market.
Can a stock market stabilization fund of more than 10 trillion won reverse the decline?
In South Korea, a stock market stabilization fund of about 10.76 trillion won set up in 2020 is again under discussion.
This year, Samsung Electronics and SK hynix announced share buyback plans totaling 55 trillion won and committed substantial funds, yet struggled to prevent the broader stock market from falling. That makes it difficult to guarantee the stabilization fund’s effectiveness based on its size alone.
Share buybacks and stock market stabilization funds differ in purpose and structure, but both call for recognition that large-scale purchases alone may not be enough to reverse a market-wide decline.
If the stock market stabilization fund is ultimately activated, it remains to be seen whether it will reverse the current decline, whether weakness will persist even after market intervention as it did in China, or whether recovering the funds will remain a long-term challenge as it has in Japan. Future policy decisions and market reactions will need to be watched closely.
