Recession Fears Loom.. "Limited Impact on Stock Market" Expected

On the 17th, dealers are working in the dealing room of Hana Bank in Euljiro, Seoul, as the KOSPI index briefly fell below the 2400 level in early trading due to the impact of a sharp decline in global stock markets. The intraday break below 2400 on the KOSPI is the first in about 1 year and 7 months since November 5, 2020 (2370.85). Photo by Moon Honam munonam@

[Asia Economy Reporter Junho Hwang] The Federal Reserve (Fed), which determines the United States' monetary policy, has taken a 'giant step' by raising the benchmark interest rate by 0.75%, but there are forecasts that the possibility of an economic recession is not high.

Seongno Kim, a researcher at BNK Investment & Securities, analyzed on the 19th, "At this FOMC, the economic growth forecast for this year was presented as 1.7% annually. If this is reverse-calculated, it implies that the fourth quarter of this year will record -0.1%, indicating negative growth, which has led to spreading concerns about a recession." He added, "In a situation where stock and bond yields are recording double-digit negative growth this year, there is also a possibility of a slowdown in the housing market due to a sharp rise in mortgage rates following the benchmark interest rate hike."

Nevertheless, he viewed the possibility of a recession as low. He stated, "Since last year, the government, household, and corporate sectors have simultaneously entered a phase of debt reduction, and housing inventory is at historically low levels," adding, "Even if a recession occurs, it is expected to be a temporary phenomenon."

In particular, the financial stability of the household sector is at an all-time high level. The household debt ratio (debt/net assets) in the first quarter of this year was 12.5%, significantly lower than 24.2% during the financial crisis. Even considering stock valuation losses due to the sharp decline in the stock market in the second quarter of this year, the impact on household net assets is expected to remain at about 1 percentage point.

Accordingly, a rebound in the KOSPI is also expected. Researcher Kim said, "The price-earnings ratio (PER) and price-to-book ratio (PBR) of the KOSPI have fallen below -1б (KOSPI 2550), a state where an autonomous rebound can be expected," and forecasted, "The PBR of semiconductors has also fallen to a level lower than at the end of March 2020, making it a time to consider long-term investment."

However, he added, "For a sustained upward trend, the soaring raw material prices caused by geopolitical issues must stabilize," explaining, "If the high oil price regime continues, a 'box KOSPI' trend similar to 2011?2014 may proceed."

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