- Ahead of the presidential election, the right time for port strikes and political forces are difficult to intervene
- Christmas-Black Friday, shifting inventory management costs to consumers, damage will increase
- Eastern port union strike, investor sentiment, interest rate cut variables
- 60% ↑ egg inflation, factors that can shake prices
- China's stock market up 10%? Short selling redemption impact, not new buying
■ Broadcast: YTN Radio FM 94.5 (09:00-10:00)
■ Host: Reporter Cho Tae-hyun
■ Air date: October 2, 2024 (Wednesday)
■ Talks: Lee Jung-hwan, professor at Hanyang University's School of Economics and Finance, Cha Young-joo, director of the Institute for i-Asset Economics,
- Short selling forces liquidate, blaming Chinese government policy expectations
- Chinese stock market timing? A decision should be made after watching a new purchase for a day or two.
* The text below may differ from the actual broadcast content, so please check the broadcast for more accurate information.
◆ Reporter Cho Tae-hyun (hereinafter referred to as Cho Tae-hyun): It's an economy that moves the world. Two countries in today's World Economy Time. I'm going to go to G2. First, in the United States, port unions in the eastern part of the country declared a strike. The aftermath is expected to be huge. On the other hand, in China, the government has come up with a large-scale economic stimulus plan to revive the Chinese economy. I think it's working a little bit. Let's take a look at these points comprehensively. We have the two experts in the studio again today. First of all, Cha Young-joo, director of the I Asset Economic Research Institute, came out. Please come in.
◈ Cha Young-joo, Director of the I Asset Economic Research Institute (hereinafter referred to as Cha Young-joo): Yes, hello
◆ Cho Tae-hyun: Professor Lee Jung-hwan is also at Hanyang University's School of Economics and Finance. Please come in.
◇ Professor Lee Jung-hwan of Hanyang University's School of Economics and Finance (hereinafter referred to as Lee Jung-hwan): Yes, hello.
◆ Cho Tae-hyun: In the United States, port unions in the Southeast have gone on strike. Has it been 47 years? You say it's been such a long time, what's the background of the strike?
◈ Cha Young-joo: Yes. If it's the southeastern part of the country, we'll have to look to the right, starting with New York. Not on the California side. It's not on the LA side, but the existing labor-management contract originally expired on September 30th. So, of course, these are the parts that have been negotiated for a long time in the process of signing a new contract. But there are definitely important parts of raising wages,
◆ Of course, that will go in.
◈ Cha Young-joo: And what the port unions hate the most is a lot about the automation of ports. Even though the president has the power to temporarily suspend the strike, no one can step up now. So from the port union's point of view, it's the right time to stick to it the most strongly before the presidential election. It's a bit ironic, but because the presidential election is coming up, he's speaking out without anyone being able to intervene. In particular, to tell you a little bit about the port union, you saw the movie The Godfather, right?
◆ Yes.
◈ Cha Young-joo: And there's port unions, and if you look at American movies, there's a lot of port unions. It's so powerful that if the port union goes on strike, all the economy stops. There is one such part, and in the past, containers were made in 1954, but it was in the mid-60s that it became like this in earnest. The reason for that is, of course, there should be some infrastructure to move the containers, but there is also a precedent that the introduction was delayed by more than a decade due to fierce opposition from port unions. So this is simply a union strike. It is a little different from the Samsung Electronics union strike we dealt with last time. Anyway, I will tell you the part that the union is a little strong now and that the only way to solve this is through labor-management consultations.
◆ Cho Tae-hyun: If you look at this, Luddite, who was in the Industrial Revolution before. This keeps coming to mind. Breaking down all the machines didn't stop such changes. I sometimes think of things like that, but wouldn't many countries use ports in the eastern part of the country? How much quantity is processed here?
◇ Lee Jung-hwan: You can think of the southeastern part as all the way to the eastern United States and the Gulf of Mexico, and even though the U.S. has a western eastern port, it's the southern part, but it's half the southeastern part. Considering that, you can think of it as operating more than 50%. In the end, it's on three sides anyway, so there's no port because the top is canada. Next, the west, east, and south are all going on strike, so I expect this to be larger than the scale, and the damage per day is estimated to be $4.5 billion to $5 billion. This is the amount of direct damage, and there are also issues such as how much it will be passed on to consumers. However, when the southeastern port is paralyzed from logistics, there is a burden of having a lot of inventory assets. Next, there are other burdens that require the general use of railroads. And then, of course, if the logistics network doesn't work using western ports, you can't make goods and sell them
◆ Cho Tae-hyun: That's right.
◇ Lee Jung-hwan: Because I can't even buy the raw materials to make the goods
◆ Cho Tae-hyun: Because it's like an artery in the industry.
◇ Lee Jung-hwan: He's very agile. In particular, the southeastern part has good connectivity with railroads. Since many people evaluate it, it is a situation in which research using railroads in different ways is inevitable. So, I think inventory costs will also increase by more than 20%. Because there are also issues that require moving what was in the port to near the railroad. So the direct cost is $5 billion. In addition, it is predicted that inventory costs, inventory management costs, and port transportation costs will increase significantly. In the end, it's a huge strike, and it's a huge strike that integrates the eastern, eastern, and southern parts of the United States.
◆ Cho Tae-hyun: If the daily loss is $4.5 billion, about 6 trillion won in our money. More than 6 trillion won will cause enormous damage every day. There are aspects that are inevitable when logistics are paralyzed. Companies seem to have responded in advance, so what was there?
◈ Cha Young-joo: As I mentioned earlier, September 30th was the expiration date. The existing labor-management contract has expired. We've been negotiating since then, and that's why companies have been preparing a little, and there's something that came out in that figure. First of all, the Eastern Port Company began not to accept goods from customers from inland and farthest from their ports. Next is inland, so turn them west. That's what I'm saying. As a result, compared to the same period last year, this western port increased its volume by 40% and exports increased by 15%. So it means that you're going to detour the ship. Therefore, as the professor said earlier, when the eastern ratio decreased and the western ratio increased, almost exports were 5 to 5, but this changed slightly to about 6 to 4. That way, there are some sides that respond in advance. And because of this, what's quite difficult for shipping companies is that they carry a ship, wait at an external port, and when one ship comes out, it enters the internal port, but can't they unload it even if they put a ship in the internal port? Then the ship itself becomes a pileup.
◆ Cho Tae-hyun: That's right.
◈ Cha Young-joo: So if you go to New York carrying goods from Brazil over there, you can't take this down in the middle. Then, shipping companies or consumers have to bear all the costs, and that doesn't mean we can't suddenly increase the ship, right? Because there are these parts, even if we prepared in advance, these figures are one of the reasons why they turned to the west a little bit and then the container freight index rose sharply.
◆ Cho Tae-hyun: So, as you said, even if the overall cost goes up and goes to the west, it's all money to move from the west to the train, so if you do those problems, won't you eventually stimulate inflation again and pass the burden on to consumers?
◇ Lee Jung-hwan: Especially, the Christmas season in the U.S. is a season that takes care of all the inventory in the year of the U.S., so discounts are enormous, and from Black Friday to the end of Christmas, so from the end of November to December is the consumption season in the U.S. You can think of it as a consumption season, and we will make all the logistics to do the consumption season. Basically, the consumption season is the season when people buy the most products, and logistics, inventory, and maintenance have been done accordingly, but if the costs of this increase, the discount will be reduced at least. I think you can understand that. And it's not actually a good aspect for employment, but strikes don't actually count as employment indicators, but there may be bad situations, and then from our perspective, since we use Asian channels, we usually go west, so I don't think it's that big of an issue
◆ Cho Tae-hyun: He said he prepared a lot.
◇ Lee Jung-hwan: There's a lot of preparation, but things like fares keep going up nonetheless. In other words, going from Europe to the North Atlantic has already risen 30-40%. In some cases, aviation has risen more than five times, and contracts are a little different because there are many variations, but there are many stories that they have already risen 30-40%, so transportation costs are inevitably burdensome. If you find an alternative route, the demand for alternative routes will be gathered, and if demand is concentrated on alternative routes, the price will rise again and again, so you can understand that it is not good. So, the Christmas consumption season is a very important season for the U.S. economy, and from the perspective of companies, the U.S. does not take inventory for a relatively long time. Since there are so many concepts that I think I'm going to shake them off at this Christmas, it's clear that there's a possibility that these commonly referred to inventory management costs will be passed on to consumers.
◆ Cho Tae-hyun: If it's passed on to consumers and prices rise like that, there are still two FOMC base rate decisions left this year. Isn't it more burdensome for this side to decide to cut the cut?
◈ Cha Young-joo: First of all, it's going to be a burden. However, because there is a speed of transmission, logistics is blocked, and companies have to meet the delivery date, so what's being said now is that in the past, we exported tires to Europe during the COVID-19 pandemic, but we were stuck in ships, so we flew them by plane. Airplane that heavy tire.
◆ Cho Tae-hyun: It's going to cost a lot of money.
◈ Cha Young-joo: It's a
that a company should keep its promise rather than money.
◆ Because we have to meet the delivery date
◈ Cha Young-joo: When I searched for the article, there's also a rumor that it's going to be turned into some aircraft. So, for example, in the case of important things, you have to do it until a month later, but if you can't ship, money is not a problem for a company. But I don't know in terms of the need for time that eventually passes on to consumers. I don't think I can make a decision easily until this election. Now, it seems that there is a possibility that these things will rise significantly after the election. One thing is that the won is strong from Korea's point of view. Things like that can relieve the burden a little. It can be a buffer, and as you said, this is the part of the Pacific Ocean that we provide, but this part hasn't gone up that sharply yet. But if you look at one situation right now, if you look at the company report that came out last month, isn't there a case of HMM, a representative container shipping company in Korea? As I mentioned earlier, it takes years to order a ship, but HMM has borrowed a few used ships. So, if I look at it comprehensively, I think it would have been a preparation for this, and HMM's stock price has recently risen by about 20%.
◆ Cho Tae-hyun: There are many signs.
◈ Cha Young-joo: These signs are also making some changes to the overall global logistics. But if one strike is over, today is the 2nd. By the way, after today's strike, will the volume start tomorrow? It takes about five days to recover.
◆ Cho Tae-hyun: Really?
◈ Cha Young-joo: Usually, after a strike, we clean up and do this again, so if we see those parts, the more time it takes, the more pressure the professor said about the Christmas season will increase.
◆ Cho Tae-hyun: As I opened today, the New York stock market in the U.S. has now been hit a bit by geopolitical risks from the Middle East. In addition, I said that the port union's strike also seems to have affected it. If so, I think there is a possibility that some negative effects such as the New York Stock Exchange will continue in the future.
◇ Lee Jung-hwan: In fact, critics say that geopolitical risks are unpredictable and it is difficult for Iran to go all out now.
◆ Cho Tae-hyun: I don't think I have any intention of doing that.
◇ Lee Jung-hwan: But the main rebel leader was killed. As those killings overlap, they have to show action, but (what's important is) the intensity of this action. If the intensity of this action goes out to an all-out war or if it goes out more smoothly. There may be situations in which you have to act, just pretend as you usually say, just mark it, and express your political opinion economically in some way, but it is a little unpredictable because political decision-making is a geopolitical risk. Nevertheless, wouldn't the Middle East risk end relatively quickly? So I can tell you that there seems to be a little more opinions that a very all-out war or an intensifying situation is not going to happen.
◆ Cho Tae-hyun: What about the port union?
◇ Lee Jung-hwan: But the port union is actually so good because the opportunity is so good that the Democrats and Republicans in the election are actually these blue-collar classes, the Rust Belt is actually Republican-backed forces, and the Republican Party is also very positive about these blue-collar walkers, even though they are pro-business. The story is that it can be a little prolonged. The most timely strike is a period in which the effect can be short-lived but also produce a lot of results that can increase the effectiveness in a way, so what the director said earlier has the potential to be a little long-term. Nevertheless, I think it's a situation where it can end quickly if there are various pressures.
◆ Cho Tae-hyun: Shouldn't we say that things like downward pressure on the stock market continue?
◈ Cha Young-joo: That's what we should look at first. Since there are currently interest rate cuts, there is a possibility that they will be fully offset. Now that the deadline is over, it will be in earnest from now on, and companies will start to complain here and there. However, even if logistics costs increase in a way, if you can't go to the United States, there are Canada and Mexico, so for these companies, you'll definitely have a detour. It's going to be pierced, but the bigger problem here is that if you join the strike to the western port, this will be a situation where the logistics that are really out of control are paralyzed. I have to take that into account, but I think I have to be nervous and watch it for now. This part may end up being easier than expected, but if it takes about two to three months to raise tension and have a ripple effect, isn't it possible for the decision makers of the current interest rate decision to make decisions right after the election? That's why there's some big volatility. Because of these things, there's another uncertainty that the stock market hates the most. Rather, it doesn't matter whether it's 25bp or 50bp that the New York stock market briefly stabilized after the 50bp cut this time. It's important that something has been decided. There was a strong psychology, but now the two are big. Iran is restraining itself right now, but there is anxiety that it will come out again at any time.
◆ Cho Tae-hyun: Because we don't know what's going to happen.
◈ Cha Young-joo: And this time again, anxiety about the port union, and so on, controlling the active actions that make the stock market more breathless. However, rather than increasing pessimism, would you be able to do it boldly if I wanted to invest in a new way now? There is no such conclusion. Let me tell you this.
◆ Cho Tae-hyun: I think we need to look at the market a little conservatively. The story of the U.S. will continue a little longer. Let's stop talking about this topic and fold it. Let's listen to the prepared file first and continue with the next topic.
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<News>
Cabbage prices have recently soared as crop conditions continue to be sluggish in the aftermath of heat waves and drought. As cabbage buying is so burdensome, the number of people looking for packaged kimchi has increased significantly. Packaged kimchi is sold out one after another in large discount stores as well as online stores. For the time being, there are many articles saying that we should give up providing cabbage kimchi as a side dish. The self-employed people who run kimchi stew and kimchi stew stores are also frustrated.
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◆ Cho Tae-hyun: We've talked about the price of cabbage several times. I've explained that this is also being affected by climate change. Why did you bring this up? I brought this up because I heard that if we have cabbage in Korea, the United States is going crazy about other things these days. Egg prices are skyrocketing.
◇ Lee Jung-hwan: Actually, there's a story that egg prices have gone up a lot. What it means is that in 2024, prices in the United States rose much more than in Korea, and egg prices basically rose a lot. Nevertheless, prices have gone up a lot because of other issues, such as avian influenza. So, compared to 2019, the price is more than 60%, and the price of eggs distributed in the United States has risen by 30% compared to a year ago. So, people are saying that the average consumer buys (12 eggs) from $3.25 to $4.5 now, but I said I would buy high-quality eggs for 10 dollars. I think it's because the prices are going up so high.
◆ Cho Tae-hyun: Prices are rising due to various factors, but if the price of cabbage rises, this affects the economy of the common people. But eggs are the same in Korea, but Americans eat a lot of eggs. Then, I think this will also have a significant impact on the economy of the common people, right?
◈ Cha Young-joo: It's the most basic. So even if inflation comes into the 2% range, what you're saying is that it's up by 30% and what you feel with your skin is 30%. If it's 30%, it's a hamburger and various parts, but the problem is that after killing with avian influenza, it takes a physical time for new raw chickens to spawn. It takes about six months. So this trend is not likely to change until next year. I'm sure you've dealt with cabbage earlier, but even if you plant cabbage now, it's already growing. That's why it's imported from other countries even though it has no choice but to go until next year. But eggs are not easy parts because they have to be sterilized, so I can tell you that this part of egg inflation is an important factor that shakes up prices.
◆ Cho Tae-hyun: Even the troubles on the port side and eggs, I don't think prices in the United States are that easy to organize. Let's stop talking about this and move on to the next topic. I mentioned G2 earlier, but let's move on to China. China's national holiday has begun. So, I looked at the Chinese stock market before the holiday started, and on Monday, the Chinese stock market soared. How much has it gone up?
◈ Cha Young-joo: The Shenzhen Composite Index rose nearly 10% on Monday. For about five days, the overall Hong Kong index rose by about 20% compared to the bottom. This happened within five days. That's why the index rose 20% in less than a week in a short period of time. So I can tell you that this is the first time in 9 years that this is a huge rise.
◆ Cho Tae-hyun: Okay. It was said that it has risen so much, but if you look at the recent trend of the Chinese stock market, it has been sluggish. What do you think is the reason why the mood has turned around this time?
◇ Lee Jung-hwan: In fact, the root of the antibiotic index crisis was the plunge in China's stock prices. Compared to the high point, the 30,000 mark went to 17,000, and these problems occurred, but the stock price was not very good. Because deflation was not good enough and because of some technological hegemony competition with the U.S., any future prospects were not good enough, and the U.S. and China cannot help but talk about the real estate market, but construction investment, which led to China's economic growth from 2008 to 2023, was weak and contracted. It is paying attention to the fact that the policy has been actively implemented to change this trend. In a way, China, which I mentioned earlier, has lowered its reserve ratio, interest rates on mortgage loans, and it has rarely lowered interest rates in all directions, but I can say that it has given a great signal by lowering interest rates in all directions. Of course, lowering interest rates will not solve everything, but it seems to be waiting for fiscal policy. The government is taking the economic situation seriously, but in fact, the Chinese government is in a good financial situation.
◆ Cho Tae-hyun: Local government is the problem.
◇ Lee Jung-hwan: On that day, as expectations spread that the Chinese government might have stepped up because the local government is in a bad financial situation. These policies were announced last week, rising by almost 10% before the start of the holiday season. With almost all-time situations in which the index rises by 10%, China's upper limit is smaller than that of Korea. The story that it went up by 10% is that the market is expecting a lot.
◆ Cho Tae-hyun: Did it go up like this when other large-scale stimulus checks came out?
◈ Cha Young-joo: So I think that's the point. The professor said that the heads came forward, but if you look at it, we usually dealt with the Chinese economy and the real estate economy. Then, in China, it was just a reduction in the reserve ratio or something like that we're going to release some money by numbers. But on the 24th, three financial chiefs held a press conference. Then on the 26th, Xi Jinping spoke at a meeting of the Central Politburo. Then came a plan to revitalize real estate on the 30th. You have to look at it like this. What's the CEO's comment when you look at a company's response to a manager talking about this and the executive's response and the CEO's response? That's the law in the company.
◆ Cho Tae-hyun: That's right.
◈ Cha Young-joo: That's why from an investor's point of view, if you look at financial leaders who have not been seen before, and Xi Jinping himself spoke about revitalizing the economy and said that real estate should be saved, from an investor's point of view, there were parts that said, "Hey, this is really something. This is different from the past." So what surprised me the most is that as we mentioned earlier, I don't think it's a new purchase. So far, I think this is a short selling buyback. As you said, the Chinese economy is not good because it has been withdrawn from 30,000, so you continued to sell short globally, right? When the stock price suddenly jumps like this, it is not a new purchase, but a short selling repurchase. I'm afraid of buying back
◆ Cho Tae-hyun: So you're doing what you can to liquidate the short selling?
◈ Cha Young-joo: Investors believe the policy will be so strong that short-selling forces feel they need to liquidate. I can tell you this.
◆ Cho Tae-hyun: Then let's do this one more time to Cha. Then, what do you think about entering the Chinese stock market now?
◈ Cha Young-joo: The stock market's rise originally begins with a short selling buyback. In Korea, secondary batteries or short selling redemption come in. Then we have to see if new purchases come in, so after the holiday on the 7th, we watch for a day or two to see if new purchases come in, and then if new purchases don't come in, the ones that were raised with expectations will fall out. However, real estate and bio can be seen as beneficiaries of interest rate cuts now. In that regard, I will say that the bottom-line approach can be effective for a short period of time.
◆ Cho Tae-hyun: Okay. The bottom line can be effective in a short period of time, and the more fundamental part is whether these stimulus measures can have an overall macro impact. What do you think?
◇ Lee Jung-hwan: I think it is necessary to examine how effective China's growth strategy itself is rather than a stimulus package. It recently appeared in the EU as a competitiveness report. So, it came out about why the EU is lagging, but there is no capital market for the United States. There is no accumulation of technology against China. What it means is that the accumulation is not possible is that the bio-semiconductors that the United States is hitting are self-developed in China. As they develop themselves, the government is infinitely pouring money into the Tsinghua University cluster. It's a little strange to say that you're throwing it in, but I think the current short-term fiscal policy will definitely work, but if the economy wants to improve in the long term, it will have the effect of being able to follow the U.S. in a superhuman way, the secondary battery and automobile sectors are showing a little bit. If the bio or semiconductor sectors are effective, the Chinese economy will revive and chase, and if they cannot, the technology gap will be maintained and difficult situations will continue. So, that kind of competition. In fact, the growth model is different, but in the United States, capital is moving quickly around the market to find good technology, and in China, it is selective about bio and semiconductors, and when it comes to results, it is said that it is actually producing some results. For example, there are talks that the number of R&D in CATL is actually higher than the total number of employees in Korea, so I think I can tell you that we need to concentrate such technologies and see how successful the government-led developments will be.
◆ Cho Tae-hyun: It is said that China has as many table tennis players as Korea's population. I think the key is for us to overcome that volume offensive. I see. So far, we have talked about the economy of the United States and China with Professor Lee Jung-hwan of Hanyang University's School of Economics and Finance and Cha Young-joo, director of the Ai Asset Economic Research Institute. Thank you for talking today.
◇ Lee Jung-hwan, ◈ Cha Young-joo: Thank you. Thank you.
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