Riding on the charging bullJust because the cause is bad, it doesn’t necessarily mean the outcome is bad. In the stock market, sometimes bad means good. China is a good example.
In the first quarter of 2015, China’s GDP was 7 percent, the lowest in six years. The slowdown in economic growth is evident. But the stock market exploded, and the Shanghai Stock Exchange went up 80 percent in six months, as investors anticipated a stimulus package by the government to revive the economy. Actually, China began releasing money into the market by lowering the interest rate and the cash reserve ratio.
“Bad is good” logic can also be applied to Korea. The Bank of Korea lowered the target GDP growth from 3.4 percent to 3.1 percent, suggesting that the market forecast was not very optimistic. The market expects the Bank of Korea to lower the interest rate once again in the second quarter and the government to program additional funds in the second half. That’s good news in the stock market.
Money from Europe is surging into Korea, and the Kospi broke 2,100 after three years and eight months. The Kospi was ridiculed to be boxed within a certain range, but now, the upward trend is very strong and is unlikely to slow down. Morgan Stanley predicted that the highest in the second half would be 2,700.
The discrepancy between the economy and the stock market is not healthy. The slumped real estate market shows signs of a revival. While income did not grow significantly, the increase in the value of assets in stocks and real estate could change the mood. Stock prices in the consumer-related sector, such as food and beverages, are also rising.
In fact, the Park Geun-hye administration has been working hard to boost the stock and real estate market, as that is most effective in reinvigorating economic behavior. Opportunity is around the corner, and we must not miss it.
We have to ride on the charging bull. Once the mood is set, we need to focus on restoring the real economy. It is needless to say that the government’s role is more important than ever. It should tighten its grip to make sure no bubbles gather in the asset market while removing obstacles to cash flow. When the atmosphere is good, painful restructuring and reform should be pursued.
But how is the government doing? We cannot expect the administration to control state affairs competently, especially since it was rocked by an extensive payoff scandal. We cannot resort to politics because lawmakers now are in a panic.
In Beijing in 1995, Samsung Chairman Lee Kun-hee said, “Korea’s administration is third-class, and politics is fourth class” - a comment that brought on harsh criticism by the administration.
Ironically, the Korean economy became healthier from a third-class administration and fourth-class politics. Now, we have no choice but to hope the economy can find some energy on its own. Unfortunately, domestic companies and the Korean economy have grown in size over the past 20 years, but their stamina and spirit have weakened.
The author is a deputy business news editor
for the JoongAng Ilbo.
JoongAng Ilbo, April 22, Page 30
by KIM JUN-HYUN