Money talks

Yi Jung-jae
The author is a columnist at the JoongAng Ilbo.

Stock pundits just shook their heads when I asked them about this week’s stock market rout. They could not tell how deep the losses could be. Pessimism prevails. Some say nothing will work, while others warn of an unprecedented crisis. Kim Kun-ho, co-CEO of market tracker FnGuide, judged a storm was brewing. “We must pay attention to the voices of money as the nature of finance surfaces at times of crisis,” he said. The tail (finance) can wag the dog (industry), he warned. When the financial sector crumbles, even the most robust industry armed with the world’s best technology can come down.

The sound of money can be heard by examining its movement. Money is always in action. It moves silently — and discreetly — but when money swells, it can make thunderous floods. With vivid memories of the 1997 foreign exchange crisis and the 2008 global financial meltdown, the financial market easily panics at ominous signs. Liquid funds have ballooned to 1,200 trillion won ($988 billion). Over 30 trillion won is parked in cashable money market funds. Investors are also heading to safer assets, like bonds, the dollar and gold.

Liquid funds can easily pull out of the Korean markets. Foreign capital can lead the way. It has little reason to stay. Korean stocks have been among the worst performers for nearly 10 years. While stocks around the globe on average jumped 58 percent from 2011 to June this year, the Kospi has gained a mere 4 percent. When taking inflation into account, Korean stocks have delivered negative returns. In contrast, the S&P 500 index soared 134 percent and Japan’s Nikkei index 108 percent. Seoul bourses have done more poorly under the liberal Moon Jae-in administration. Over the last two years, the global stock prices on average gained 16 percent, but the Kospi fell 14 percent. The Institutional Brokers’ Estimate System projected Korean stocks to yield a negative 26 percent on average this year, performing their worst since the 2008 financial crisis. The forecast was made even before the Sino-U.S. trade war evolved into a currency war and before Japan imposed export restrictions on Korea.

We cannot blame the cold nature of money. It is born to smell — and chase after — gains. It goes where more money can be made or at least be safe. Authorities must take comprehensive measures if they want to keep their money on home turf. They must immediately do away with anti-corporate and pro-labor policies and ease regulations to broaden the market. Otherwise, the economy’s weaknesses, stemming from delays of structural reforms by past governments, shocks from hikes in the corporate tax rate and the minimum wage, and a universal cutback in working hours under the Moon administration, cannot be cured.

Extraordinary money movement is like abnormal symptoms discovered in medical exams. Even cancer can be cured if the malignant tumor is found at an early stage. Fears of a crisis can actually prevent a crisis. The government thinks otherwise. It only repeats the mantra that the country’s fundamentals are strong. It is more sensitive to rumors than crisis itself. The government claims we will be giving in to the Japanese if we fret about economics. This is why some suspect the government is fanning anti-Japanese sentiment to cover its failures.

A foreign exchange dealer watches the movement of currency prices on a monitor at KEB Hana Bank as the Kospi dropped below 1,900 for the first time since 2016. [YONHAP]

Its strategy against Japan is unreliable. The Blue House and government ruled out the possibility of Japan restoring to financial attacks. They also assure us the markets won’t be greatly affected if Japanese capital leaves. Japan was the first to reject the rollover of loans to Korea during its 1997 liquidity crisis which led other lenders to follow suit to aggravate the situation to the point of Seoul seeking an international bailout to avoid national default. Tokyo broke a currency swap agreement when former President Lee Myung-bak visited Dokdo islets to protest Japan’s territorial claims. Japan knows how to play with money. If the tension builds, Japan will use finance as weaponry. The move could deal a fatal blow to the Korean won, which is already at its weakest in three years against the Japanese yen as a result of the currency war between the U.S. and China.

The idealists who chant a rally cry to combat Japan must visit the online chat rooms for retail investors. The mood has dramatically changed from two years ago, when any comments against President Moon was not tolerated. But now, all the posts are negative towards Moon as they blame him for the stock woes. The number of active stock accounts total 28.77 million. If they act in next general election, the ruling party has no chance.

JoongAng Ilbo, Aug. 8, Page 30