Lee Min-hyung joined The Korea Times in 2014 and has worked as a journalist mainly in Korea’s finance, tech and automotive industry. He specializes in content creation, breaking news and in-depth analysis currently on transportation and mobility. You can reach him via mhlee@koreatimes.co.kr.
Experts predict U-shaped economic recovery
By Lee Min-hyung
US, Chinese stocks and gold optimal sources of investment ahead of rebound
By Lee Min-hyung
The Korean economy will likely achieve a U-shaped economic recovery by the end of this year as domestic consumption and exports are expected to bounce back in line with China's strong signs of economic rebound, experts said Wednesday.
The Bank of Korea (BOK) has also toned down its pessimistic views on the near-term rebound of the local economy. Last week, BOK Governor Lee Ju-yeol said the economy would be on track for a “steady rebound” in the latter half of this year.
In an issue note released by the central bank, Wednesday, it said the economy is unlikely to achieve a quick V-shaped recovery, which comes shortly after a sharp economic decline, until the end of this year. The U-shaped slow-yet-steady recovery scenario is more feasible for now, it added.
Economists were in line with the bank's assessment. A gradual subsiding sign of coronavirus spread here also increases the likelihood for the nation's U-shaped recovery, they said.
“One of the biggest factors to affect the local economy will be the external one represented by the recent rebound of the Chinese economy,” said Kang Hyun-ju, an economist at the Korea Capital Market Institute (KCMI).
China, Asia's biggest economy, expanded 3.2 percent in the second quarter, compared to the previous year. The Chinese economy appears to be slowly recovering from the virus shock, and if it achieves over 5 percent growth in the latter half of 2020, there is the possibility that a stable recovery track is also possible for the Korean economy, according to Kang.
“The country's exports will definitely bounce back when the Chinese economy normalizes,” Kang said.
Korea's economy is heavily dependent upon export volume and destination, particularly due to its proximity to China. In assessing private consumption, the economist pointed out the key lies in the COVID-19 spread, as domestic consumption has dwindled mostly from fears over the virus.
US, China stocks will go up
Market experts advised investors to pay more attention to stocks from the United States and China amid signals for a potential economic rebound here and abroad.
“I would say that the U.S. stocks are some of the most promising ones for investment due to their strong fundamentals compared to those from any other countries. But they also need to focus on Chinese stocks which are gaining relatively less attention,” said Hwang Sei-woon, another economist at the KCMI.
“Even if the U.S. and China are waging a trade war, chances are very slim for the Chinese economy to suffer major setbacks.”
Ample liquidity already being put on the market was also adding an additional momentum for stock growth from the world's two largest economies, the economist pointed out.
“Liquidity has nowhere to go, but to the stock or property markets,” he said. “The Korean stock market will also go up in line with the possible rebound of the U.S. market. But the speed of the growth in the local stock market can never match that from the world's largest economy.”
Some pundits raised concerns over liquidity's inflow into the capital market, saying that real economy won't benefit from the corporation-centered growth. In Korea, the BOK's liquidity expansion might flow into the real estate market, which does no good for the economy.
But other economists said this is “too much of a concern.”
“The inflow of liquidity into the stock market can never be seen as a concern,” Hansung University economist Kim Sang-bong said. “The problem could only take place just in the case of capital outflow into overseas markets.”