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※ This content was broadcast on the 'Economy ON' program of Yonhap News TV on Monday, December 9th at 4 PM. (Featuring: Seo Young-tae, Yonhap Infomax reporter, Hosted by: Lee Min-jae)
[Anchor Lee Min-jae]
Amid ongoing political uncertainty due to martial law and impeachment, foreign institutions are also issuing consecutive evaluations of Korea's economic and market situation.
[Reporter Seo Young-tae]
The expression H4L (Higher for Longer), which was used to describe the Federal Reserve's monetary policy stance, has now appeared in foreign reports to describe Korea's political uncertainty.
On the 9th, Citi said in a report titled "National Assembly Fails to Impeach President, What's Next?" that "political uncertainty could be higher for longer." This is due to differences in party positions regarding the timing of the next presidential election.
Citi warned that "higher and prolonged political uncertainty could significantly weaken economic sentiment," expressing concerns about consumer spending.
Citi also mentioned the budget issue. It said that if the National Assembly fails to pass next year's budget in December despite high volatility in the dollar-won exchange rate, the Bank of Korea is more likely to implement a back-to-back 0.25 percentage point rate cut at the January Monetary Policy Committee meeting. The Bank of Korea had already lowered the base rate to 3.00% last November.
Citi presented four possible political scenarios going forward.
The first scenario is preferred by the Democratic Party. It involves more than eight ruling party members joining the opposition's impeachment motion, leading to the president's impeachment being passed in the near future. In this case, the Constitutional Court is likely to conclude the impeachment trial around March or April next year.
The second scenario is preferred by the People Power Party. It involves shortening the president's term by about a year and holding the presidential election in June 2026, accompanied by a constitutional amendment for a four-year, two-term presidency.
The third scenario presented by Citi is President Yoon Suk Yeol voluntarily resigning and holding a presidential election within 60 days. The final scenario is the opposition repeatedly failing to pass the impeachment motion or the Constitutional Court rejecting it, allowing President Yoon to continue his term with the next presidential election in May 2027.
[Anchor]
Goldman Sachs also issued a report on the exchange rate, didn't they?
[Reporter]
An opinion emerged that the National Pension Service's portfolio rebalancing and currency hedging could reduce pressure on the won's weakness.
Kwon Goo-hoon, a Goldman Sachs economist, said in a report on the 9th that the National Pension Service holds more overseas assets than its benchmark and could buy more domestic securities that it holds less of. This suggests that the National Pension Service has the capacity to allocate about 10-20 trillion won to the Korean securities market.
The dollar-won exchange rate is showing extreme volatility. According to Yonhap Infomax Financial Market Comprehensive (Screen No. 3000), the exchange rate rose 15.70 won to 1,434.90 won during the afternoon session on the 9th. Before the martial law situation, it moved in the early 1,400 won range.
Goldman Sachs said that the National Pension Service implemented currency hedging at 2.75%, lower than the hedging limit (5%), and that the hedging scale could also increase. The National Pension Service can theoretically hedge up to 10%. Goldman analyzed that additional hedging is possible if the dollar-won exchange rate shows an unusual upward trend.
Regarding the outlook for the Korean economy, Goldman maintained its forecast of 1.8% economic growth for next year. However, it said, "Risks are tilted to the downside," suggesting that the growth forecast could be lowered further.
Goldman said that the political instability during the impeachment phases in 2004 and 2016 did not have a significant negative impact on economic growth, but these are not cases to refer to. This is because there are currently no positive factors like the Chinese economic boom in 2004 or the semiconductor boom in 2016.
Goldman said, "Next year, Korea, like other export-oriented countries, will face external headwinds such as China's economic slowdown and uncertainty in U.S. trade policy."
Goldman Sachs was optimistic about monetary and fiscal policy room.
Amid slowing economic growth and inflation, the Bank of Korea has already started a rate cut cycle. The Bank of Korea also lowered rates last month, hinting at the possibility of further cuts. Goldman maintained its forecast that the Bank of Korea will cut rates by an additional 0.25 percentage points each quarter until mid-next year, reaching 2.25%.
Goldman said that Korea's government debt ratio is relatively low, and fiscal easing could support economic growth once political stability is restored. The International Monetary Fund (IMF) estimates the government debt to GDP ratio for 2024 at 52.9%.
Goldman Sachs also expected the government's value-up program to continue. Goldman said, "The stock market environment for general shareholders will continue to improve."
[Anchor]
How will the stock market outlook be amid the unstable political situation?
[Reporter]
The government and the ruling party are talking about an "orderly resignation." While they are taking a stance to resolve the political situation promptly, the opposition party insists that impeachment is the only way and has decided to push for a second impeachment vote on the 14th. An extreme confrontation in the political situation is expected in the future.
The domestic stock market should also prepare for being swayed by politics for the time being.
Daishin Securities said, "The stock market will inevitably be shaken by political issues, events, and news like last weekend." They also stated, "For the KOSPI, which is affected by domestic and foreign uncertainty variables as well as political uncertainty, to show a strong trend in the short term, a clear picture of political solutions must come first."
[Anchor]
If political confrontation and uncertainty continue for the time being, the stock market will face downward pressure. Foreign investors, in particular, are likely to be uneasy.
[Reporter]
The extreme confrontation between the opposition and the ruling party revealed during the impeachment process is causing anxiety. Foreign investor exodus could increase further.
From the perspective of foreign investors, this could be an opportunity to buy KOSPI at a low price, but many point out that it's unreasonable to expect a trend of foreign investors "coming back" due to the endless political instability.
Overseas institutions viewed that political uncertainty is holding back the stock market.
Saxo Capital Markets predicted, "Considering the recent political crisis, the Korea discount is likely to last longer."
After the martial law situation, the government's quick resolution resulted in less financial market shock than expected. However, if the confusion persists, the continuity and credibility of major policies could be damaged.
Some global investment banks are saying that the timing of selling Korean stocks should be brought forward due to this situation.
Hong Kong-based securities firm CLSA, which stated that the investment weight in Korean stocks should be significantly reduced next year, reportedly said that this adjustment should be brought forward.
[Anchor]
Foreign investors particularly showed a tendency to sell off financial sector stocks, didn't they?
[Reporter]
Foreign investors are massively withdrawing their investments in domestic financial sectors. This is interpreted as quickly recovering investment funds, considering that the financial sector will be relatively more negatively affected by political instability compared to other sectors.
According to Yonhap Infomax, foreign investors net sold a total of 1 trillion 85 billion won in the KOSPI market for three days from December 4th to 6th, immediately after the martial law situation.
Foreign investors' net selling of financial sector stocks amounted to 709.6 billion won. The foreign investors' shareholding ratio in the financial sector also decreased by more than 1 percentage point from 37.19% on the 3rd to 36.12% on the 6th. Among all 21 sectors, the financial sector saw the largest drop in foreign shareholding ratio.
An official from a financial holding company said, "There are also rising doubts about whether the government's value-up program will gain momentum in the future due to political reasons."
(Yonhap Infomax Financial Department Reporter Seo Young-tae)
※This content is from the video news covered in the Yonhap News TV Investigation File corner.
ytseo@yna.co.kr
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