China, Fed top risk list

Financial industry experts point to slowing growth in China and emerging markets as well as the tapering of the U.S. quantitative easing as the biggest financial risks in the second half of the year.

In a system risks survey by the Bank of Korea of 90 experts, including fund managers and strategic and risk managers from 77 institutions, 78 percent said decelerating growth in China and other emerging markets was the major risk that could disrupt Korea’s financial market. This was a significant increase from January, when 24 percent considered it a high risk. The U.S. scaling back of its stimulus program was cited by 77 percent, up from 50 percent earlier this year.

Household debt, which is on the verge of reaching a record 1,000 trillion won ($909 billion), remained as one of the top five risks, followed by a growing number of companies whose credit ratings have been downgraded and falling real estate prices.

In the latest survey, the European fiscal crisis and the currency exchange risk from Abenomics were no longer in the top five.

The poll showed the U.S. central bank’s reduction of asset purchases would likely have the most immediate effect as it could rattle the nation’s financial market and eventually the real economy within a year. Decelerating growth in China and emerging markets as well as the lower credit ratings and housing prices were identified as risks that could affect the local economy within three years. Household debt was considered a one-to-three-year risk.

Another study indicated Korea’s domestic economy has been slipping.

A report by HSBC showed manufacturing output and new orders shrank for the third consecutive month in August.

The purchasing managers’ index, which gauges the health of the manufacturing sector, rose from 47.2 in July to 47.5 in August. However, pre-production inventories fell at the fastest rate since 2008.

The HSBC report said the fall in production and low order volumes were the result of the domestic economic slowdown and weak demand.

Contraction in shipbuilding and the construction industry were other key contributing factors.

The report added that new export orders also have fallen at their sharpest pace in 54 months.

The HSBC report was released a day after the government announced that Korean outbound shipments last month showed an unexpected increase of almost 8 percent.

The Ministry of Trade, Industry and Energy said it was the largest year-on-year growth since a 10.9 percent expansion in January.

“Korea’s economic outlook remains challenging,” said Ronal Man, an HSBC economist. “The sharper fall in new export orders suggests that Korea’s trade-led recovery will likely be delayed. We expect Korea’s GDP to grow 2.4 percent in 2013.”

BY LEE HO-JEONG [ojlee82@joongang.co.kr]