Korean Stock Market, Manufacturing Accounts for 68.6%... "Fails to Reflect Real Economy Shock"

Bank of Korea Releases Monthly Survey and Statistics Report on the 31st
'Analysis of the Real Economy Representation of South Korea's Stock Market'

[Image source=Yonhap News]

[Asia Economy Reporter Jang Sehee] As manufacturing accounts for more than half of South Korea's stock market, a study has found that different patterns are emerging between the stock market and the real economy.

On the 31st, Kim Dowan, Manager of the Macroeconomic and Fiscal Team at the Bank of Korea, along with researchers Kim Donghoon and Lee Jinki, stated in their report titled 'Analysis of the Real Economy Representativeness of South Korea's Stock Market' that "The KOSPI represents manufacturing-centered listed companies rather than the entire real economy of South Korea, so different patterns may appear between the stock market and the real economy."

In fact, based on the average from 2015 to 2020, manufacturing accounted for 68.6% of the stock market capitalization. In contrast, the service sector accounted for only 27.3%. The Bank of Korea explained, "Even among the top companies by market capitalization, most are manufacturers such as Samsung Electronics, SK Hynix, and Hyundai Motor Company."

During the same period, the share of gross domestic product (GDP) by industry showed that the service sector accounted for 51.4%, while manufacturing accounted for 18.6%. The employment share was also 67.3% for the service sector, which was 48.7 percentage points higher than manufacturing (18.6%).

The Bank of Korea explained that South Korea's stock market well represents the added value of manufacturing but relatively poorly reflects the added value of the entire industry and the service sector. In particular, the employment representativeness of the stock market was generally lower than the added value representativeness and has weakened trendwise since the financial crisis.

Looking at the market capitalization added value representativeness index over the past five years, the service sector showed the highest level at around 40%. The entire industry and manufacturing recorded 30% and 23%, respectively. This indicates that manufacturing representativeness is significantly higher than that of the service sector.

Accordingly, the Bank of Korea emphasized, "When using stock prices as a leading economic indicator for economic forecasting, it is necessary to note that South Korea's stock prices mainly provide information on manufacturing production and exports rather than the entire economy."

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