"9 out of 10 Institutional Investors Say Korean Stock Market Less Competitive than US, UK, and Hong Kong"

FKI Conducts Survey on 'Competitiveness Evaluation and Challenges of Domestic Stock Market' for Institutional Investors
Efforts Needed to Ease Financial Market Regulations and Boost Corporate Vitality

Stock market decline rates of major countries as of October 14 compared to the end of 2021. [Provided by the Federation of Korean Industries]

[Asia Economy Reporter Han Yeju] Amid the recent sharp decline in the composite stock index compared to major countries due to aggressive interest rate hikes in the United States and other factors, there is an urgent call for efforts to enhance the competitiveness of the domestic stock market to strengthen its resilience against external shocks.

The Federation of Korean Industries (FKI) commissioned market research firm Mono Research to survey stock management officers (institutional investors) of major domestic institutional investment firms (asset management companies, securities firms, banks, etc.). Based on responses from 100 participants, the survey on "Evaluation and Challenges of Domestic Stock Market Competitiveness" found that Korean institutional investors rated the competitiveness of the Korean stock market at 70.6% compared to international financial hubs such as the United States, the United Kingdom, and Hong Kong.

Looking more closely at the evaluation of the Korean stock market's competitiveness level, the responses were as follows: ▲70% level (25.0%) ▲80% level (23.0%) ▲90% level (16.0%) ▲40% level (14.0%) ▲50% level (10.0%) ▲60% level (6.0%) ▲100% level (5.0%) ▲110% level (1.0%). This indicates that 9 out of 10 institutional investors (94.0%) believe that the competitiveness of the Korean stock market is inferior to that of international financial hubs.

Institutional investors forecast that if the Korean stock market attains competitiveness at the level of international financial hubs, the market capitalization of the domestic stock market would increase by an average of 29.7%. Considering that the market capitalization of the domestic stock market was 2,061 trillion KRW as of October 14, the increase in market capitalization due to improved competitiveness would amount to 612.1 trillion KRW.

As priority policy tasks to strengthen the competitiveness of the domestic stock market, institutional investors identified financial market deregulation (27.0%) and enhancing corporate vitality through deregulation and tax burden reduction (23.6%). Other key tasks included ▲inheritance tax relief (10.0%) ▲active attraction of foreign financial firms and global financial talent (9.0%) ▲resolution of geopolitical risks such as inter-Korean relations (8.3%).

Regarding the influence of investment entities (individuals, institutions, foreigners) on the domestic stock market, institutional investors responded that on average, ▲foreigners exert 37.8% influence ▲institutions 35.9% ▲individuals 26.3%, indicating that foreigners have the greatest influence on the stock market among investment entities.

For policies needed to promote foreign investment in the domestic stock market, the most common response was strengthening the fundamentals and credibility of the Korean economy (38.2%). Following this, institutional investors cited ▲maintaining an appropriate level of the Korea-US interest rate differential (22.6%) ▲preventing foreign exchange losses through exchange rate stabilization (19.6%) ▲efforts to be included in the MSCI developed market index (9.1%) as other important tasks.

The biggest risks to the domestic stock market in the fourth quarter of this year, as forecasted by institutional investors, were interest rate hikes (32.6%) and exchange rate increases (26.7%). Additionally, ▲domestic and international economic growth slowdown (14.6%) ▲US Federal Reserve monetary tightening (13.7%) were also expected to negatively impact the domestic stock market.

Regarding the timing of a full-fledged rebound in the domestic stock market, next year was the most cited period at 44.0% (27.0% in the second half, 17.0% in the first half), but 14.0% of respondents believed that the slump would continue beyond 2024. Specifically, the rebound timing forecasts were ▲second half of 2023 (27.0%) ▲early 2024 onward (25.0%) ▲first half of 2023 (17.0%) ▲second half of 2022 (15.0%) ▲continued slump beyond 2024 (14.0%) ▲others (2.0%).

Meanwhile, institutional investors projected that if the domestic stock market continues to weaken due to global tightening effects, the composite stock index could fall to an average low of 1,958 in the fourth quarter of this year. The expected low points were ▲around the 1,900 level (47.0%) ▲around the 2,000 level (29.0%) ▲around the 1,800 level (23.0%) ▲around the 2,100 level (1.0%).

The average composite stock index level expected by institutional investors during the fourth quarter was 2,077. Specifically, the responses were ▲around the 2,000 level (40.0%) ▲around the 2,100 level (37.0%) ▲around the 1,900 level (16.0%) ▲around the 2,200 level (5.0%) ▲around the 1,800 level (2.0%).

Choo Kwang-ho, head of the FKI Economic Headquarters, stated, "As the global tightening trend is expected to continue for some time, domestic interest rate and KRW-USD exchange rate increases may pose burdens on the Korean stock market. To stabilize the domestic stock market, it is necessary to enhance corporate profitability through deregulation and tax cuts, and to increase foreign investors' trust in the Korean economy by managing the current account and securing fiscal soundness."

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