Major Institutional Investors Show Divergent Outlooks for Next Year's Capital Market

[Asia Economy Reporter So-yeon Park] Even among the ‘big players’ institutional investors who dominate the capital market, market outlooks for next year diverge. This also indicates how difficult it is to predict the economic environment for the coming year. There are contrasting forecasts: a negative outlook anticipating a gear-like downward trend due to worsening corporate earnings and restructuring, and an opposing view expecting the capital market to show a preemptive recovery as the influence of major global adverse factors weakens.

◇Uncertainty remains, lower expected returns= Heo Jang, Business Director (Chief Investment Officer, CIO) of the Korea Local Government Officials’ Mutual Aid Association, analyzed, "The stock market next year will be uncertain and volatile," adding, "Expected returns will also be relatively low." Heo CIO forecasted, "Downward pressure will be high due to economic recession, credit risk, worsening corporate earnings, and restructuring issues." However, he noted, "The strong learning effect from past recessions where abundant liquidity supply led to a V-shaped rebound means contrarian buying could occur." He added, "Rather than a sharp plunge, a gear-like downward trend is expected." Investors who experienced rapid market recovery after the financial crisis and the COVID-19 pandemic may attempt bottom-fishing, causing some market movement, but overall a downward trend is anticipated.

◇Global adverse factors weaken, market moves first= Han Jong-seok, Financial Investment Director (CIO) of the Police Mutual Aid Association, said, "The Russia-Ukraine war, China’s lockdown policies, and global monetary tightening, which acted as adverse factors this year, will ease somewhat next year," adding, "Although other risks such as economic recession may arise, if there is confidence that this is the bottom, the stock market will be fine." He said, "If the economic contraction proceeds more strongly than expected, it won’t be easy, but I don’t think the KOSPI will fall below 2200." He added, "It will be a good opportunity to increase stock holdings at low prices." Lee Do-yoon, Head of Asset Management at Noranwoosan (Yellow Umbrella) also predicted, "High interest rates will be maintained for a while, but as soon as there is even a slight sense that the end is in sight, the market will move ahead." Lee CIO advised, "However, for now, it is better to wait a little and confirm the bottom."

◇The biggest risk in the first half of next year is credit crunch; caution advised for real estate and corporate finance= Institutional investors shared concerns about worsening corporate earnings and credit crunch next year. Heo CIO said, "Once interest rate hikes peak out, the economic recession will become more visible," and predicted, "Differentiation based on credit quality will occur in bond investments." He expected, "As interest rate appeal diminishes and investment alternatives narrow, funds will actively move to bonds with low credit risk." He also foresaw a deepening ‘the rich get richer, the poor get poorer’ phenomenon based on credit quality in corporate finance and bond investments. Han Jong-seok CIO also emphasized, "Risks may increase in real estate and corporate finance, so this is a time when management is necessary."

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