Volatility Is Not a Trend... Korean Stock Market's Appeal May Decrease

Global Consumption Normalization After COVID-19 Shock
Further Durable Goods Consumption Increase Difficult for Korea
Interest in Financial Markets Expected to Weaken

On the 10th, employees are working at Hana Bank in Myeongdong, Seoul. [Image source=Yonhap News]

[Asia Economy Reporter Minwoo Lee] There is an analysis that global consumption patterns, which were impacted by COVID-19, will normalize and cause the global financial markets to become unfavorable to the domestic stock market. It is inevitable that the momentum of leading sectors such as IT and automobiles will slow down.

On the 12th, Hanwha Investment & Securities predicted that this change would occur as durable goods consumption in major countries including the U.S. is expected to slow down this year. Last year, the U.S. Gross Domestic Product (GDP) decreased by 2.3% compared to the previous year. Final consumption, which accounts for 70% of GDP, decreased by 2.7%, and service consumption, which accounts for 67% of consumption, decreased by 5.4%. However, nondurable goods consumption such as food and beverages and cosmetics increased by 2.1%, and durable goods consumption such as automobiles, computers, and refrigerators increased by 5.6%. Seungyoung Park, a researcher at Hanwha Investment & Securities, explained, "Service consumption decreased due to restrictions on outdoor activities, but durable goods consumption increased as a balloon effect. Durable goods consumption in the U.S. increased by an average of 1.1% annually from 2010 to 2019, but last year it increased by 5.6%, which is five times the usual rate."

The inventory replenishment effect that led the economic recovery from the second half of last year is weakening. Now, it is time for deferred consumption rebound to drive the economic recovery. However, while service consumption may increase, durable goods consumption is unlikely to rise because once purchased, durable goods are rarely bought again for several years. Researcher Park diagnosed, "Assuming the economy returns to its trend, service consumption will increase, but nondurable goods consumption will see little change, and durable goods consumption will decrease. This is not only a phenomenon in the U.S. but also similar to the item-by-item trends in South Korea."

Last year, liquidity surged worldwide, causing a weakening of the U.S. dollar, which created a favorable environment for emerging market stocks. Global demand for durable goods benefited from the COVID-19 outbreak’s reflexive effects. This was advantageous for markets with a high manufacturing ratio such as South Korea and Taiwan.

It is analyzed that this period is now coming to an end. Researcher Park explained, "The COVID-19 vaccination rate in the U.S. has exceeded 6%, and herd immunity is expected to be achieved this summer. Although there are many statements from the Federal Open Market Committee (FOMC) under the U.S. Federal Reserve advocating for monetary easing to stimulate the economy, the dollar’s weakness is slowing down." Seasonally, the severe winter of the pandemic is passing.

Investor interest in financial markets is also expected to gradually weaken. Despite the overall decrease in service consumption last year, financial service consumption was the only category to increase, as it could be purchased online like durable goods. Researcher Park predicted, "The increase in durable goods consumption and financial service consumption last year was likely a balloon effect caused by the spread of COVID-19 rather than a trend. We should not mistake volatility for a trend. Although it depends on the speed at which the virus is controlled, global consumption patterns will return to normal, and during this period, preference for the Korean stock market will be lower compared to other markets."

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