Capital markets answer for Bumpy RoadThe Korea Chamber of Commerce chose “Bumpy Road” as the economic and social keyword of 2017. This year, Korea is expected to be on a bumpy road with various obstacles. The Korean economy is faced with U.S. interest rate hike and U.S. President Donald Trump’s trade protectionism as well as domestic factors like North Korean nuclear threats and political uncertainty. There are concerned voices for stagnant growth. More than half of the 2400 companies nationwide got into a survival mode and selected “conservative management basis.”
Until now, Korean economy has overcome a number of crises and became the 11th largest economy in the world. However, the traditional manufacturing sector that made the Miracle of the Han River possible can no longer guarantee growth. The domestic growth rate remained at 2 percent for three consecutive years, below the global average, and is expected to be around the mid-2 percent level. In order to overcome the crisis and pursue growth in the unprecedented time of uncertainty, we need to seek fundamental changes and reform rather than mere survival mode.
To lead the changes in industrial structure, Korea needs government-level policy on innovation and venture companies. Moreover, the private sector, especially the capital market, plays a crucial role. In the past, Korea’s economic growth was in synch with the development of the capital market. From the 1970s to 1990s, the capital market supported the growth of traditional manufacturing industries, such as shipbuilding, chemical, steel and automobile, through KOSPI. Around the 2000s, Kosdaq opened and pulled up the IT and venture companies.
In the transitional period to the fourth industrial revolution, the role of the capital market for raising funds is more important than ever.
Venture and innovative companies have higher risk and require longer time for fund collection. The capital market can smoothly link the venture and innovative entrepreneurs seeking new business models and the investors seeking high yield by taking risk.
The exchange will continue to create market environment to raise funds for companies with promising technology and business model even if they are in deficit. Moreover, the structural reform in progress would make Kosdaq and KONEX markets specialized markets for venture capital. While Korean economy is on a bumpy road, let’s hope that we can ride on the winds of the capital market and get through the crisis.