Another Emerging Stock Market Keyword 'Inflation·Interest Rate Hike'... Stock Price Tantrum Predicted

[Asia Economy Reporter Ji Yeon-jin] Inflation and interest rate hikes have once again emerged as key issues in the domestic stock market. The fluctuations in international oil and natural gas prices have intensified the inflation debate. International oil prices recently reached their highest level since October 2018, and the yield on long-term U.S. Treasury bonds is also raising its lows.

According to the financial investment industry on the 3rd, the average inflation rate in the U.S. from 2010 to August this year was 1.85%. The mid-range consumer price index is expected to record 2.9%. The U.S. Federal Reserve (Fed) presented the median core PCE inflation rate at the September FOMC as 3.7% for this year, 2.3% for next year, and 2.2% for 2023, already meeting the conditions for interest rate hikes.

Han-jin Kim, a researcher at KTB Investment & Securities, explained, "Price indicators, commodity prices, real interest rates, and expected inflation have important implications for judging future market styles and market risks," adding, "The reason inflation is currently a burden on asset markets is not because prices are uncontrollably high, but because inflation forecasts have been revised upward, increasing uncertainty in monetary policy."

Expected inflation based on the government bond market is likely to rise further for the time being, and oil prices are also expected to increase additionally. In the expansion phase of the economy caused by supply shortages, expected inflation is projected to rise even if supply bottlenecks disappear, because very low real interest rates (inflation-linked bonds) will rapidly normalize (rise) in the future. It is forecasted that inflation-friendly sectors (energy, materials, industrials) will be promising stocks for the time being.

Furthermore, the rise in real interest rates still signals that the dollar strength trend will continue. This contrasts with the usual risk-on environment where commodity prices rise and the dollar weakens. Dollar strength is a burden on emerging market stocks, caused by financial imbalances stemming from uncertainty about monetary tightening even as the global economy enters an expansion phase.

However, the dollar strength trend may act as a brake during the fourth quarter, preventing energy or metal commodity prices from rising sharply, according to some analyses.

Interest rates are also likely to rise for the time being. Strong economic indicators such as employment are expected to continue pushing long-term interest rates higher. Researcher Kim said, "As the economic growth path is confirmed going forward, the possibility of long-term interest rates rising is high," adding, "This signals that inflation will ultimately be a game changer and that interest rate-driven stock market tantrums may occur more frequently for the time being."

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