Will Liquidity-Driven Stock and Real Estate Surges Continue This Year? GO or STOP?

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[Asia Economy Reporter Kim Eunbyeol] Will the surge in asset prices continue this year based on the massive liquidity unleashed in response to the novel coronavirus disease (COVID-19) crisis? Most market participants and experts agree that the sharp rise in stock and real estate markets is inevitable for the time being. Although there is some hope for vaccines, the spread of COVID-19 remains persistent, so it is not yet time to withdraw liquidity, and there are no suitable alternative investment destinations. However, some voices warn that the asset market is already a 'Bubble' and that preparations should be made for the possibility of a change in market sentiment.

Expectations for KOSPI to Surpass 3000... Forecasts for 3300 Level

Since the beginning of the new year, the KOSPI index has surpassed the 2950 level, with prospects of breaking through the 3000 mark. Experts unanimously agree that the money currently in circulation will inevitably flow into the stock market. According to the International Finance Center on the 5th, major investment banks (IBs) forecast that global stock prices will rise by around 9% this year. JP Morgan expects the U.S. stock market to increase by 19.2%, Europe by 18.1%, and emerging markets by 15.7% this year. HSBC predicts that the emerging market stock rise will be 14.9%, higher than the U.S. (13.8%) and Europe (7.4%).

The main reason for expecting stock price increases is ultimately liquidity. Leading the U.S., countries are unlikely to tighten the money supply they loosened last year to respond to COVID-19. U.S. President Donald Trump signed a federal government budget and a budget plan worth a total of $2.3 trillion (2,520 trillion won), which includes a $900 billion COVID-19 fiscal stimulus package.

It is widely believed that overseas investors' funds will flow into Asian emerging markets. According to a survey conducted by Nikkei Asia on six analysts and fund managers the day before, experts were optimistic that Asian emerging market stocks would maintain momentum this year. Goldman Sachs also forecasted that Asian corporate earnings would increase by 16% this year. With money flowing globally due to COVID-19 and particularly optimistic views on Asian markets, stock prices are likely to rise further this year.

South Korea has also set its largest-ever budget this year at 558 trillion won. Depending on the COVID-19 situation and economic recovery, the possibility of supplementary budgets (extra budgets) cannot be ruled out. Especially in South Korea, where real estate investment is regulated, individual investment funds are more likely to flow into the stock market. Some point out that since positive factors such as economic recovery have already been reflected in the market, there may be a correction in the first half of the year. Daishin Securities advised that the KOSPI index could undergo a short-term correction in the first quarter (January to March) this year. However, they added, "There is a high possibility of entering a second upward phase after the correction."

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Will the Government's Strong Real Estate Regulations Show Effects This Year?

Will the effects of ongoing real estate regulations under the determination to 'control housing prices' appear this year? For now, the answers from real estate market participants lean towards 'No.' According to real estate market outlook surveys conducted by various institutions, most respondents expect housing prices to continue rising this year.

According to 'Zigbang,' a real estate information company, in its '2021 Housing Market Outlook' survey of 3,230 Zigbang app users, 59% responded that housing sale prices would rise this year, which is twice the 29% who expected a decline. The remaining 12% anticipated prices to remain flat. Among those expecting price increases, 36.5% cited increased demand to buy homes due to the burden of rising monthly rent and deposit costs.

According to the monthly KB Housing Price Trend time series statistics by KB Real Estate Live On, the nationwide buyer dominance index this month was 103.4, surpassing the baseline (100) for the first time since February 2002 (103.4). The nationwide buyer dominance index has exceeded 100 only three times since the related statistics began: January and February 2002, and now. Considering that asset markets tend to fluctuate according to participants' psychology, housing prices are likely to continue rising steadily this year.

However, some point out that the government's regulatory effects may appear belatedly, and the approach of interest rate normalization could be factors that lower housing prices. Professor Lee Jonggyu, visiting professor at Daegu Catholic University, wrote in a contribution to the National Future Research Institute, "The ratio of narrow money (M1) to broad money (M2) remains high, and there are no signs of changes in economic agents' asset holding patterns, which supports housing purchase demand," but also stated, "Given the burden of the previously high prices, a market adjustment mechanism that causes buyers to give up or delay home purchases may operate." He added, "Considering the housing market cycle, there is a very high probability that the housing market will undergo a major turning point within about one year, or at most two years."

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