Internet giants catch fire in Korean echo of Chinese crackdown

(Bloomberg) – Kakao Corp. and Naver Corp. fell, set to record the biggest declines in years, after South Korean lawmakers warned the country’s internet giants against abusing their dominant market position in search of profits.

Kakao, which runs Korea’s largest messaging and social media service, plunged more than 11%, on track for its worst drop since 2012. Naver, who runs the Line messaging platform as well as a multitude of applications, slipped more than 8%, ready for its biggest loss in six years.

Kakao should not follow the path of the country’s sprawling “chaebol” conglomerates by ignoring fair competition, Song Young-gil, leader of the ruling Democratic Party, said at a forum hosted by fellow lawmakers, Yonhap reported. A separate report from DongA Ilbo said the ruling party decided to focus on platform operators during its annual audit of the assembly starting October 1.

South Korea has taken action to curb foreign and local tech companies, mirroring a months-long crackdown in China that wiped out more than $ 1 trillion in value for China’s largest companies. As in Beijing, regulators and politicians in Seoul have expressed concerns about the growing power and valuations of internet companies like Kakao, Naver and Coupang Inc. after the pandemic spurred an unprecedented increase in internet activity.

“Regulatory issues aren’t just one-time issues,” said Sung Jonghwa, analyst at eBEST Investment & Securities Co. “When stocks perform extremely well, regulatory issues can have a bigger impact.”

Kakao and Naver have been among the most notable beneficiaries of the pandemic stay-at-home trend in the South Korean stock market. Kakao is still up 78% over the past 12 months, helped by mega-fleets of shares from subsidiaries such as Kakao Games Corp. and KakaoBank Corp., while Naver is up 32%.

Korean lawmakers have targeted huge technological and industrial complexes like Samsung Electronics Co. in recent years because of monopoly behavior and corruption scandals. This week’s moves are among the strongest to date against the domestic internet industry, which has grown to compete with traditional conglomerates in terms of corporate power and market value.

Read more: Kakao Pay cuts IPO to $ 1.3 billion as valuation concerns rise

In addition to criticism from lawmakers, the sector is also under pressure from financial regulators. The Financial Services Commission said on Tuesday that online platforms that advertise financial products may be subject to regulations to protect consumers.

(Addition of a statement from the financial regulator, an analyst commentary, a background on recent legislation)

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