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- Korean Economy
what a surge! After a decade-long struggle, the Kospi finally broke through the formidable barrier of 3000, reaching heights no one had ever before imagined. Kospi has meandered up and down around 2000 for more than thirteen years from October 2007 to May 2020. It was back in October 2007 after it first shattered the 2000 mark when everybody was talking and hoping about the Kospi reaching 3000. No one ever expected it would take so long to get to 3000. The cruel reality never let it propel beyond the historical 2000 mark, leaving it hovering around there for more than a decade. It was in January 2021 when it first reached 3150, and it was just like reaching Canaan after 40 years of the Israelites’ Exodus wandering the Sinai wilderness.
It is natural to ask why it was possible this time. It was not because of the general macro-economic environment, as COVID-19 has officially spread via a third wave around the world. It was not that the political landscape was particularly favorable as incumbent political leaders around the world are facing serious challenges. Notwithstanding the unfavorable macroeconomic environment and shaken political leadership, the Kospi index was able to skyrocket mainly because of the bright light, like that of the northern star, which semiconductor producers in Korea have shed throughout the COVID-19 pandemic. Understanding that the pandemic has profoundly changed the world’s economic normal, and that the IT industry should be the leading player in that change, some Korean firms should be able to reap the benefits of such changes. With such prospects, the Korean people, especially the younger generation, rushed towards the stock market, and history was made. Of course, plentiful liquidity has played a significant part and extremely low interest rates and accommodative monetary policy were also important contributors. But the brighter expectation of the IT industry in the post pandemic era was for sure the main driving force behind this stock market surge.
However, this surge would not be without risks. Historically speaking, almost every surge in the Korean stock market has been followed by subsequent fall-outs. Sometimes they were brief, but other times they lasted more than a few years. As most young investors had to rely on substantial leverages, meaning borrowed funds, they would like to sell their holdings to cash in those profits. Another possibility is that the market interest rates may rise under the new Biden administration. Or, COVID-19 variants would drag the global economy further down to the pit. No matter what may be the reason, every investor has to be mindful about potential correction in near future. Despite these potential pushbacks, however, it is still highly hoped that this boom in the stock market will survive because it is mainly driven by high expectations of new technology suited for the new world and new norms. As long as Korean firms and the government are dedicated to R&D investments for new technology, there is no reason to believe otherwise.
By Professor Se Don Shin
Dean, Sookmyung Women’s University
The opinions expressed in this article are the author’s own and do not reflect the views of KOTRA