[Initial Insight] The Three Key Words of the Korean Economy Now

[Asia Economy Reporter Kim Jong-hwa] The darkness of the novel coronavirus infection (COVID-19), which began around the Lunar New Year, still lingers even after Chuseok. As the global pandemic has drained the vitality of the economy, the livelihoods of ordinary people and the youth have become even more difficult.

Let’s take a look at the latest news on three key words that anyone who has ever tried to make money in Korea can easily recall: apartment, stock, and lotto.

According to the monthly housing price trend statistics from KB Kookmin Bank on the 2nd, the average price of apartments in the 1st quintile (the lowest 20% by price) in Seoul last month was 448.92 million KRW. Compared to one year ago (362.32 million KRW), it rose by 23.9%, and compared to two years ago (331.99 million KRW), it increased by 35.2%. The average price of apartments in the 2nd quintile above that was also about 713 million KRW, up 25.7% from one year ago and 40.5% from two years ago. The rapid rise in prices of low-priced apartments, which ordinary people could challenge, discourages their willingness to try.

According to KB Kookmin Bank’s analysis, the 'Price-to-Income Ratio (PIR)' of apartments in Seoul as of the second quarter of this year was 11.4. This ratio is the housing price divided by household income, meaning that the entire household would have to save for 11.4 years without spending a single penny to afford a house. It was 9.9 in 2018, indicating that housing prices have risen faster than income. With monthly rent prices also rising, housing insecurity among the lower-income class is intensifying.

Next is stocks. Following SK Biopharm in July and Kakao Games in September, Big Hit Entertainment, home to BTS (Bangtan Sonyeondan), is preparing for its IPO in October. Stock market-related terms such as short selling, IPO subscription, 'ttasang' (first-day double jump), and the 'Donghak Ant War' (retail investor movement) are trending buzzwords.

Stock investment is also popular among the youth. This year, 57% of newly opened accounts at six securities firms including Mirae Asset Daewoo and NH Investment & Securities belong to the 20s and 30s age group.

Their investment style is characterized by so-called 'ochigi investment,' where they sell immediately after earning just 50,000 KRW or a 5% return. Due to the ochigi investment by the 20s and 30s generation, the average daily trading volume in the domestic stock market exceeded 30 trillion KRW last month. It seems that saving earned income is no longer an attractive means of wealth accumulation for the younger generation.

Finally, lotto. According to the Ministry of Strategy and Finance’s Lottery Commission on the 1st, total lottery sales in the first half of this year amounted to 2.6208 trillion KRW, an increase of 11.1% (267.3 billion KRW) compared to the first half of last year. This is the largest scale ever recorded since the Lottery Commission began disclosing lottery business performance on a semiannual basis in 2005.

Generally, lotteries are considered a 'recession-type product' that sells well during economic downturns. However, there are cases where the hypothesis that lottery sales increase when the economy worsens is not always true. According to the 'Lottery White Paper' published by the Lottery Commission in 2014, lottery sales during the 1998 IMF crisis dropped sharply by 12.4% to 320.9 billion KRW compared to the previous year. During the 2008 global financial crisis, lottery sales increased by only 0.5% to 2.394 trillion KRW compared to the previous year.

The record sales this time were attributed to the success of the newly launched 'Pension Lottery 720+' in April. The Lottery Commission claims that the prize money was raised from 5 million to 7 million KRW per month for 20 years, which attracted popularity. However, the more commonsense interpretation is that "it is natural for people to increasingly hope for a windfall when they cannot even afford a home after decades of effort."

Looking at the current status of these three key words, there is no particularly uplifting news. Since BTS was mentioned earlier, watching the activities of these wonderful singers who travel the global cultural scene is at least a consolation. In their song 'Dynamite,' which was the first by a Korean artist to top the US Billboard 'Hot 100' chart, BTS sings: "Tonight, I'm in the stars, so watch me bring the fire and set the night alight." Like the lyrics, we hope the brilliant flames that will brighten the darkness of COVID-19 and the recession will come soon.

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