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CLSA derides Moon’s New Deal fund

President Moon Jae-in speaks at a meeting with finance industry leaders about the Korean New Deal on Thursday. (Yonhap)
President Moon Jae-in speaks at a meeting with finance industry leaders about the Korean New Deal on Thursday. (Yonhap)

A report by Hong Kong-based investment bank CLSA lashed out at President Moon Jae-in‘s Korean New Deal initiative and the 20 trillion-won ($16.8 billion) fund to finance the projects, claiming his scheme promotes moral hazard and is designed to win votes.

In the report titled “Moon’s debut as a fund manager,” Paul Choi, head of Korea research at CLSA, addressed possible negative impacts due to the government’s fund scheme, such as the “blowing of a bubble” in the secondary battery, bio, internet and gaming sectors. In line with the government’s New Deal initiative, the nation‘s sole bourse operator Korea Exchange launched five stock indexes, as well as a comprehensive index encompassing all four sectors.

“The government is manipulating the market by directly touting beneficiaries by controversial inclusion of certain stocks and exclusion of certain stocks,” he said. “The government’s direct stock picking as well as backstopping the losses in the flagship New Deal Policy Fund promotes moral hazard,” he added.

The author also played down the government’s pledge to absorb up to 10 percent of any possible losses of the New Deal fund, asking, “How do you compete with a fund manager which can cover losses with taxes?”

The 20 trillion-won fund set up by the government as a subordinate investor is to revitalize the Korean economy and create new jobs, according to officials.

In previous reports, the CLSA researcher has been highly critical of Moon’s economic drive and market regulations, labeling them “socialist” policies. Such policies could result in an exodus of capital and firms, he has said.

By Jie Ye-eun (yeeun@heraldcorp.com)
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