[EDITORIALS]Strong market, weak dollarThe Korean economy is expected to enter the “Double 1000 era.” The Korean Composite Stock Price Index will rise above 1000 and the exchange rate of the Korean won to the U.S. dollar will go down to 1000 won soon. There is no reason to make a fuss over having two 1000s. But the meaning is significant because they cast both light and shadow on our economy.
The stock market started bullish from the beginning of the year, and the Kospi climbed over 900 easily. Analysts predict that it is only a matter of time before the index breaks through the 1000 ceiling. Anyhow, it is good for Korean economy. The reason stock prices increase, while other economic indices lag behind, is because many investors see a bright Korean economy. This will heighten expectations of a recovery in the later half.
On the other hand, a won-dollar exchange rate of 1000 is a burden to our economy. In the global trend of a weak U.S. dollar since the latter half of last year, the exchange rate of the Korean won to the U.S. dollar started to drop, and the trend continues even in the new year. The lower the exchange rate goes, the worse the competitiveness and profitability of our export businesses. If exports that supported the Korean economy single-handedly last year decline, the depth of our economic recession will grow even deeper.
However, there is no hard rule that says the rise in the stock price index is a good thing, and the decline in the foreign exchange rate is evil for the economy. How to adjust them to the economy depends on our economy’s capability.
A bull market can be sustained when the performance of listed companies support the market. If not, it is nothing but a bubble. The stock price index has reached the 1000 mark three times. But it failed to sustain it because it lacked the ability to sustain growth. Some analysts interpret the recent stock price surge as a temporary phenomena resulting from a rush of cash overflowing into the market.
The same applies to the foreign exchange rate. Before the 1997 financial crisis, the won-dollar exchange rate was a three digit figure. At that time, Korean export businesses managed to compete in the international market. If they can’t survive now, it is because they lost competitiveness. If exports are supported by high exchange rates, there is certainly a limit in competitiveness. “Double 1000” is a touchstone, testing the capacity of Korean economy.