Lee Jin-man, Associated Press
SEOUL, South Korea — Lee Hyun-chang rushed to sell all his shares in drug maker Wooridul Pharmaceutical after South Korea's ruling conservative party scored an upset win in last week's parliamentary elections. The college student was part of a stampede that sent the stock plunging 15 percent.
To anyone outside a subset of South Korea's amateur stock trading scene, the link between the obscure pharmaceutical company and South Korea's political elite would be mysterious. But it was simple for the 25-year-old Lee. He's convinced Wooridul is allied with opposition politicians and would only prosper if South Koreans elect their candidate president in December elections.
Lee's tenuous evidence: the opposition's presidential hopeful had once been the chief of staff to a former South Korean president who underwent surgery at Wooridul Spine Hospital, a sister company to Wooridul Pharmaceutical. According to stock traders' lore, that president, the late Roh Moo-hyun, was also once a lawyer for the hospital in the 1990s.
For Lee, selling Wooridul shares was a no-brainer. The opposition's poor showing in the parliamentary elections suggested its candidate would also face defeat in the presidential poll. There would be no political favors for Wooridul.
Speculating on the outcome of elections is nothing new for investors but in South Korea it is a window into a society that can seem opaque to the West. The high importance placed on personal ties and kinship is reflected in the conspiracy-level convictions of Lee and others that rest on vague connections. And even as their theories seem far-fetched, they're also a nod to the deep links between politicians and business.
South Koreans remember that generous government support was behind the 1970s rise of the chaebol — family-controlled industrial conglomerates that still dominate the economy. Some chaebol families and many of South Korea's presidents, past and present, are linked by marriages and school networks. How much those relationships benefited chaebol families is still widely debated but there was a clear pattern of the fortunes of chaebols rising and falling in tandem with a change of president, said Jun Sung-In, an economics professor at Hongik University.
The pervasiveness of broadband and mobile Internet in South Korea adds another twist, enabling the wildfire spread of rumors and instant buy and sell clicks. Nearly 75 percent of trading on the KOSDAQ market for smaller companies was carried out on home trading systems in 2011, according to Korea Exchange. Stock trading through mobile devices accounted for 9 percent.
"Combined with South Korea's political situation — when someone rises to political power, people in the person's circle are expected to receive benefits — and Koreans who tend to invest in the short term," home trading systems have contributed to a more volatile market during the election year, said Ha Eun-soo, a senior official at the Financial Supervisory Service.
April 12, the day after the parliamentary elections, wasn't just a bad day for Wooridul Pharmaceutical shares. Other "Moon theme" stocks, a reference to the opposition's putative presidential candidate, Moon Jae-in, were also punished.
Having a chief executive who went to the same high school as Moon or a long-ago business deal with a former employer of Moon were all reason enough for a listed company to be labeled a Moon stock.
Kwak Kwang-chul, a 39-year-old office worker, said he regarded stationery maker Barunson Co. as a Moon stock because the firm had "used the legal office where Moon Jae-in used to work."
Any link was denied by a Barunson official who said a brief visit to the legal firm a decade ago may have turned into an unstoppable rumor.
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