Global Liquidity, Focus on Chinese Economy... BlackRock Expects Korea Market to Benefit

Possibility of China-Originated 'Risk On' Phenomenon
Focus on South Korea, Japan, and Taiwan with Strong Economic Recovery and Policy Capacity

[Image source=EPA Yonhap News]

[Asia Economy Reporter Kim Eunbyeol] As China's economic recovery is expected to be faster than anticipated, there is an analysis that a China-originated 'risk-on' phenomenon may emerge. It is explained that the money released by various countries in response to the shock of the novel coronavirus infection (COVID-19) could flow into the asset markets of China and countries closely related to China.

According to the International Finance Center on the 8th, Ben Powell, BlackRock's Chief Investment Strategist for the Asia-Pacific region, stated in a recent interview, "Stocks and bonds in Asian markets closely related to China's recovery and with remaining policy response capacity (regarding COVID-19) will deliver excellent returns." He also named South Korea, Japan, and Taiwan as countries expected to have high profitability.

Chief Investment Strategist Powell said, "These countries can implement additional policies if necessary, and their economic structures are more directly exposed to China," adding, "With China's economy showing signs of recovery and well-coordinated policies, these countries are expected to perform better than other emerging countries by about 6 to 12 months."

Recent various economic indicators confirm that China's economy is rebounding. The Caixin Services Purchasing Managers' Index (PMI) for June rose 3.4 points from 55.0 last month to 58.4, marking the highest level since May 2010. Previously, China's Manufacturing PMI also increased from 50.6 in May to 50.9 in June. A PMI above 50 indicates economic expansion, while below 50 indicates contraction.

Although there are slight differences, institutions are also paying attention to China's economy. The International Monetary Fund (IMF) expects China to be one of the few countries worldwide to achieve 'positive growth' this year. The IMF projects China's growth rate at 1.0% this year and a rebound to 8.2% next year. The Asian Development Bank (ADB) forecasts China's growth rate at 2.3% this year and 7.3% next year. The nine overseas investment banks (IBs) surveyed by the Bank of Korea in its 'Overseas Economic Focus' project a 3.0% growth rate for China this year and 7.5% next year.

A Bank of Korea official explained, "The perspective on global growth forecasts varies depending on how institutions view China's growth rate projections," adding, "Institutions with a positive outlook on China's economy generally also evaluate South Korea positively, reflecting the significant exposure of South Korea's economy to China." South Korea's exports to China account for about one-third of its total exports.

However, there is also criticism that the phenomenon of market investors focusing on China and South Korea, based on abundant global liquidity, is not entirely welcome. Given the high openness of the Korean market, foreign investors could flood into the Korean market and then exit all at once if conditions change, potentially increasing volatility. While asset markets such as stocks and bonds are soaring, giving the appearance of economic recovery, the real economy is still recovering slowly, which should not be overlooked.

Meanwhile, the Shanghai Composite Index closed at 3,345.34 on the previous day, up 0.37% from the previous trading day. It even surpassed the 3,400 mark during intraday trading. As of 10 a.m. on the same day, the KOSPI index was trading at 2,162.01, down 0.10% (2.16 points) from the previous day, while the KOSDAQ index was up 0.31% (2.39 points) at 761.55. The Korean stock market has recently shown an upward trend in asset prices, nearly recovering to pre-COVID-19 levels.

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