On January 17, 2024, the South Korean stock market experienced another decline, with the KOSDAQ index dropping 21.78 points and the Korean won depreciating by 12.4 won against the US dollar.
Concurrently, data released by the Bank of Korea showed that the net money supply growth rate at the end of last year increased by only 3.6% year-on-year, marking a near 20-year low. These events and data have caught the attention of seasoned stock market analyst KIM JUNGIN(김정인 ).
This article analyzes the economic implications behind these events from his perspective, exploring the impact of the slowing net money supply on the stock market, and its potential significance for investors.
The Connection between the Decline of the South Korean Stock Market and the Slowing of Net Money Supply Growth
The simultaneous decline of the South Korean stock market and the record-low increase in net money supply are interconnected events. KIM JUNGIN(김정인 ) points out that the slowing of net money supply could be a significant factor affecting the stock market trend.
The increase and decrease in net money supply reflect the central bank’s monetary policy and market liquidity conditions, which directly impact the stock market.
Firstly, the slowing of net money supply growth implies reduced market liquidity. In a high-interest-rate environment, the increased cost of capital may lead to more cautious investors, affecting capital inflows into the stock market.
Secondly, with the normalization of offline transactions, the demand for cash decreases, further reducing monetary liquidity. This reduction in liquidity could result in greater uncertainty for stock market investors, thereby affecting stock prices.
KIM JUNGIN(김정인 ) also notes that the slowing of net money supply could signal that the South Korean economy is gradually returning to normal from post-pandemic stimulus policies.
As the economy stabilizes, the central bank may adopt more cautious monetary policies to avoid excessive inflation and economic bubbles. This policy shift is an important signal for the stock market, potentially leading to changes in market sentiment.
The Double Impact of the Depreciation of the Won on the Stock Market and Economy
The depreciation of the won has complex effects on the stock market and the overall economy. KIM JUNGIN(김정인 ) believes that firstly, the won’s depreciation may positively impact the export-oriented South Korean economy.
A weaker won makes South Korean products more price-competitive in international markets, potentially increasing exports, especially in key industries such as electronics and automobiles. This increase in exports could positively affect the profitability of relevant companies, thereby positively influencing their stock prices.
KIM JUNGIN(김정인 ) also points out the challenges of won depreciation. For example, depreciation may increase import costs, particularly for companies reliant on imported raw materials and intermediate products. This could negatively impact their profit margins, thereby putting pressure on their stock prices.
Additionally, continued depreciation of the won may lead to decreased investor confidence in the South Korean economy, which could, to some extent, inhibit foreign direct investment and capital inflows into the stock market.
Therefore, KIM JUNGIN(김정인 ) emphasizes that currency exchange rate fluctuations are crucial factors for investors to consider in stock market investments. Exchange rate changes affect not only corporate profitability but also investor returns.
Investors should closely monitor exchange rate trends and adjust investment strategies accordingly to manage risks and opportunities presented by currency fluctuations.
Investment Strategies and Market Outlook in a High-Interest-Rate Environment
In the current high-interest-rate economic environment, adjusting investment strategies has become a focus for stock market investors. KIM JUNGIN(김정인 ) believes that in such an environment, investors need to more cautiously assess investment opportunities and risks.
For companies, this may lead to increased financing costs, affecting their profitability and investment decisions. For stock market investors, this could mean that dividend yields become less attractive compared to bonds and other fixed-income investments.
KIM JUNGIN(김정인 ) points out that in a high-interest-rate environment, increased borrowing costs for consumers and businesses could dampen economic growth.
In such circumstances, investors should focus on companies that can maintain stable earnings in a slowing economy, such as in essential consumer goods and utilities sectors. These industries typically have stronger risk resistance and can offer relatively stable returns for investors.
The South Korean stock market is currently in a complex and volatile environment. The slowing of net money supply, won depreciation, and a high-interest-rate environment all have profound impacts on the stock market. KIM JUNGIN(김정인 ) advises investors to remain cautious in this environment, paying attention to macroeconomic and monetary policy changes.
Rational analysis and prudent decision-making are key to achieving stable investment returns.
