[Good Morning Stock Market] "Victory of the Pro-Ruling Party in the General Election, Short-Term Market Impact is Neutral"

Lee Hae-chan, leader of the Democratic Party of Korea, Lee In-young, floor leader, and Woo Hee-jong, election committee chairman of the Democratic Citizens' Party, are placing election winner stickers on the elected candidates at the comprehensive vote counting situation room set up in the National Assembly on the 15th. Photo by Yoon Dong-joo doso7@

[Asia Economy Reporter Geum Bo-ryeong] As the 21st National Assembly election concluded with a victory for the ruling coalition, opinions suggest that the short-term impact on the market is neutral. This is primarily because the government is expected to focus on economic stimulus measures to limit the impact of the novel coronavirus infection (COVID-19). Analysis indicates that the election results have strengthened the government's push for economic stimulus policies.

◆ Kim Seong-geun, Researcher at Korea Investment & Securities = It is significant that the ruling coalition secured more than 180 seats. This is because the opposition's ability to check the ruling party is very limited. The National Assembly Advancement Act prohibits the majority party from forcibly passing bills other than the budget, but this applies only if the ruling party holds fewer than 180 seats. With over 180 seats, this restriction does not apply. The ruling party can even neutralize the opposition's filibuster, gaining strong policy-driving power. The legitimacy was further solidified by the highest voter turnout of 66% in this election. Had they secured two-thirds, or 200 seats, a unilateral constitutional amendment would have been possible, but this scenario did not materialize.

Foreign media reported that the election results enable a focus on rapid supplementary budget approval and recovery from COVID-19, while also potentially strengthening redistribution-focused economic policies and tighter real estate regulations. These are aspects to watch in the medium term.

However, the short-term impact on the market is neutral. For now, the focus is expected to be on economic stimulus to limit the effects of COVID-19. The market is currently reacting sensitively to the confirmation of COVID-19 damages. Economic indicators have begun to fully reflect the impact of the COVID-19 situation, as seen in the continuing underperformance relative to consensus in the economic surprise index. Since uncertainty about the extent of the damage remains, it is necessary to keep a close eye on upcoming indicator results and policy responses.

◆ Ahn So-eun, Researcher at IBK Investment & Securities = In the early stages of COVID-19, policies focused on financial support for severely affected industries and on COVID-19 prevention measures. At this current stage, after passing the peak of the outbreak, policies are needed that directly boost private consumption demand to enable a virtuous cycle in the domestic economy. The second supplementary budget bill for the government's emergency disaster relief payments can also be seen in this context.

However, compared to major countries, South Korea's fiscal policy response to COVID-19 (as a percentage of GDP) remains relatively small, even including the 9.7 trillion won emergency disaster relief fund. While concerns about fiscal soundness may arise with additional fiscal spending, an aggressive fiscal policy stance to stimulate domestic demand is expected to continue. Considering the election results, the ruling party holding a majority can accelerate the current government's policy implementation, which is also positive.

This content was produced with the assistance of AI translation services.