Value context and insight. lkm@koreatimes.co.kr
'Improve real economy to power up stocks'
First Vice Minister of Economy and Finance Kim Yong-beom, second from right, speaks during a meeting of financial authorities at the Korea Federation of Banks, in Seoul. Yonhap
By Lee Kyung-min
By Lee Kyung-min
The recent bullish sentiment in the soaring stock market will not be able to sustain itself unless backed by recovery of the real economy, a major risk to healthy growth that must be underpinned by greater corporate investments to make productive use of the stimulus-carried ample market liquidity, the country's senior economic policymaker said Thursday.
The warning by First Vice Minister of Economy and Finance Kim Yong-beom points to the mismatch between market expectations of corporate profit and the longer-than-expected prolongation of issues concerning unemployment, industrial output and consumption ― key economic indices that show no signs of corresponding material improvement amid the COVID-19 pandemic.
The stock market continues a strong uptrend, Kim said, driven by expectations of recovery concerning the domestic and global economies as well as corporate earnings.
“The stock market surpassing the 3,000-points mark should be supported by a recovery in the real economy combined with the success of virus containment,” he said during a meeting of financial authorities at the Korea Federation of Banks in Seoul.
“We must stay on alert since the financial crisis-left dent in the economy may be deeper than previously thought, not to mention possible risks that could hamper the projected course of economic recovery.”
The rapid uptrend of the stock market over the past few weeks culminated in the benchmark stock index KOSPI reaching a high of 3.027.16 Wednesday morning, surpassing the symbolic 3,000 points for the first time. It took 13 years and five months after the KOSPI first broke through the previous significant 2,000-points mark in July 2007.
The KOSPI rose further to a high of 3,034 points, Thursday, and closed at 3,031.68, up 63.47 points or 2.14 percent from the previous session.
The government policy priority should therefore be successful management of market liquidity severely increased due to the emergency fiscal and monetary policies put in place to fight the pandemic, he added.
“The liquidity injected to weather the crisis should not undermine financial stability, an objective that should be equally pursued alongside measures to soft-land the economy following a sharp rise in overall risks in the financial industry."
Cheap borrowing costs enabled by record-low interest rates need to be redirected to corporate investment, a task that will be facilitated by deregulation and a variety of tax incentives as part of the Korean New Deal, a policy vision to identify sustainable growth with an emphasis on the green economy and technology development.
“Large firms and institutional investors should consider productivity value when making investment choices,” he added.