Anna Jiwon Park has been covering the politics at The Korea Times since the summer of 2024, when she joined the press pool for the Office of the President in Korea. Prior to that, she spent about five years reporting extensively on financial markets, regulatory authorities and the financial industry. She joined The Korea Times in 2019 after spending eight years as a broadcast journalist at Arirang TV, Korea’s leading global broadcaster, covering politics, defense and culture.
China liquidity risks, supply chain disruptions to weigh on stock markets
By Anna J. Park
Supply-side inflation feared to hurt production, consumption
By Anna J. Park
China's liquidity risk and global supply chain disruptions are expected to continue weighing on local stock markets, as these could cause wider volatility both here and abroad, experts said Sunday. They point out that among the mounting issues burdening global stock markets, the unresolved liquidity crisis facing Chinese real estate developer Evergrande is just one problem the markets will have to deal with.
Rising global energy prices, in part due to oil prices hitting a seven-year high, are leading to increased prices in almost every commodity, resource and asset. This global inflationary pressure is weakening the possibility of a smooth recovery for both economies worldwide and investment sentiment.
In response to the pressure, the central banks of major countries are mulling over advancing their timeline for tightening monetary policies, possibly heralding the end of the current liquidity-led market.
The ongoing U.S. debt ceiling standoff in the Capitol is also adding fuel to growing uncertainty in global markets. If it were to occur, a U.S. default could have inflammatory effects beyond any single organization's control.
Disruptions in global supply chains are another factor weighing markets down. Current shortages in resources, ranging from raw materials to semiconductors, are expected to drag down industrial output globally until next year.
Some observers note that the current soaring prices for energy and raw materials reminds them of the 1970s oil shock and the stagflation that followed. With what is being called “greenflation” ― rising prices for metals and minerals required for carbon-neutral energy technologies ― also occurring, companies' interest in investing in fossil fuel energy-related resources is dropping, affecting global supplies.
“Normally, inflation is incurred through an increased demand for products, a process which is considered benign inflation. Meanwhile inflation coming from the supply side is considered malignant, as it hampers corporate production and leads to price increases, and then shrinking consumption,” said Kim Hak-kyun, head of research at Shinyoung Securities.
The layering of these various pressing issues has led some market experts to say that the global economy is now entering a slowdown.
“The current phase has just passed an inflection point where economic fundamentals and market liquidity conditions have both turned toward a downtrend, weakening investor sentiment,” said Jung Yong-taek, head of research at IBK Investment & Securities.
He sees Korean stock markets as having peaked in the second quarter, and so will now likely decline gradually in the coming months, as they enter a slowdown.
Other experts, however, remain positive on their potential for further grow.
“Growth or profit momentum is slowing, but there's no concrete ground to conclude that the global economy has passed its peak and is heading into a slump,” said Kim Hyung-ryeol, research head at Kyobo Securities. “The current phase just seems like a predicted level. I think the view that now is the beginning of a bearish market is rather premature,” he added.
Kim Yong-goo, a strategist at Samsung Securities, also said the current phase seems more of a transitory disruption than a structural decline.
“A structural decline in the market will come when real economic conditions fundamentally change. However, the current situation doesn't fit that scenario. There are various political uncertainties pending in both the U.S. and China, burdening the market, but I don't think the worst-case scenario will be realized, as politicians will strive to avoid this,” he said.
Reflecting this view, Park Sang-hyun, an economist at HI Investment & Securities said momentum for Korean stock markets' growth hinges on a resolution of China risks.
“Although it will take some time, the current phase is more likely to end with an upward movement in the markets, despite the various uncertainties that remain,” Park said. “However, as Korean markets are closely linked to China's economy, their direction now seems to hinge on the resolution of the current Chinese liquidity crisis,” he stressed.