■ Broadcast: YTN Radio FM 94.5 (09:00-10:00)
■ Host: Reporter Cho Tae-hyun
■ Air date: December 4, 2024 (Wednesday)
■ Dialogue: Lee Ji-hwan, CEO of ISET Economic Research Institute
* 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): As I said while opening the door earlier, President Yoon Suk Yeol declared the lifting of martial law in six hours. But in the meantime, the financial market turned very tense. Although I've found some stability now. Even now, the market started with a sharp decline in the KOSPI. There are also concerns that the anxiety will still hit our economy hard. Let's talk over the phone with Lee Ji-hwan, CEO of ISET Economic Research Institute. Is the CEO here?
◇ Lee Ji-hwan, CEO of ISET Economic Research Institute (hereinafter referred to as Lee Ji-hwan): Yes, hello. I'm Lee Ji-hwan.
◆ Cho Tae-hyun: Yes, how are you? Did you get some sleep, CEO?
◇ Lee Ji-hwan: Oh, I should say that I barely slept.
◆ Cho Tae-hyun: I'm almost open right now, but anyway, the Korea Exchange decided to open normally in our stock market this morning. In addition, all of the various financial markets are operating normally now. What do you think is the reason for choosing to open normally like this?
◇ Lee Ji-hwan: First of all, I think it was a way to relieve market anxiety, especially about foreigners, and until the decision on whether to open the Korean stock market at 7:30 p.m., the report seemed to have made such a difficult decision that it was repeated that it would be open and not open. For now, foreigners participating in our market, especially foreigners now, are different from the past martial law. In particular, Korea's paid futures, MSCI Korea-related ETFs, and ADRs were reflected in foreign stock markets in real time almost overnight, so it seems that it is more stable to open the stock market now because not opening the stock market can cause further such anxiety.
◆ Cho Tae-hyun: That would be better. Anyway, the financial market continued to turn last night before deciding to open normally today. If you look at the financial market, there was a lot of fluctuations. In what areas could you detect this?
◇ Lee Ji-hwan: As I said earlier, our Korean products are listed in foreign countries unlike in the past. In particular, gifts related to the entire Korean index stock market are listed on the Eurex market. When the emergency decree was declared last night, it once plunged by more than 5%. This part probably reflected the stock market most closely, and the other is MSCI's ETF-listed shares, which are listed in the United States, especially related to Korea. It once plunged by more than 7%. As these parts are reflected, the stock market may fluctuate in case of emergency. On top of that, we extended the opening time at night for the offshore exchange rate.
◆ Was it until 2 a.m.?
◇ Lee Ji-hwan: Because it was extended until 2 a.m., it was reflected in real time, once over KRW 1,445 and this KRW 1,440 is the last figure we took in 2009 when the stock market temporarily plunged during the pandemic and after the 2008 financial crisis. As such, the volatility of the financial market fluctuated significantly.
◆ Cho Tae-hyun: There are also domestic companies listed on the U.S. market. There are companies like Coupang that come to mind right now, so how was the stock price on this side?
◇ Lee Ji-hwan: In the case of Coupang, where we are listed directly, it plunged by more than 9%. Once. Then, stocks listed indirectly in the form of ADI, for example, POSCO plunged more than 4%. Most of the stocks were listed on the US ADI in an indirect form or directly listed Korean companies saw a sharp drop of about 4-5% to 8-9%.
◆ Cho Tae-hyun: Then come to the domestic stock market. Looking at the start of the domestic stock market now, it seems that the fall is not as big as expected. It's about 1%, so it's a sharp drop, but it's a little calm. In a way, how should we judge the background that can be seen like this?
◇ Lee Ji-hwan: First of all, the biggest part is that the emergency martial law has been lifted. However, foreigners sold in the KOSPI market to some extent in the early market, and the peculiar part is that the market is more stable than expected. As you said, foreigners sell less, especially in the futures market, which is a derivatives market, and foreigners respond by buying. Then, in the long run, when such a stock market fluctuates suddenly, derivatives are usually canceled, and foreigners do not cancel significantly except for some minor changes in the options market. If you look at these parts, it seems to judge that volatility will probably be only short-term.
◆ Cho Tae-hyun: Overall, the fundamentals have not changed, so I will summarize that it is likely to be short-term volatility. You told me about the exchange rate earlier. Last night, the exchange rate rose to the 1430 won range and exceeded 40 won. Currently, it's in the late 1,400 won range, so should I say there's a possibility that this will rise further? How do you see the possibility of continuing to be anxious?
◇ Lee Ji-hwan: First of all, the volatility is bound to increase in the short term under the emergency martial law, and even if it stabilizes in the short term, in fact, if we look at the old situation, the political volatility is bound to affect the exchange rate. In particular, for example, if there is a part related to impeachment that the Democratic Party is trying to propose today, this will move from the emergency martial law to the impeachment. In that case, the exchange rate will be sensitive, especially as the exchange rate has continued to rise in the 1,400 won range recently in a difficult situation for the Korean economy, so the exchange rate will probably increase volatility for the time being and the won will continue to weaken for the time being.
◆ Cho Tae-hyun: Then the volatility of the exchange rate increased. Then, some predict that it can go up to 1,500 won now, what do you think, CEO?
◇ Lee Ji-hwan: We expect the dollar to strengthen because the U.S. is now cheating on interest rates, and the euro or yen has recently become relatively strong due to the growing volatility of the euro or yen, but we don't think the dollar is going to go very strong because it's generally cheating on interest rates. Reflecting the relative strength of the won's weakness, I think it is likely to peak at around 1,450 won in the mid-1440 won range, which was briefly recorded in the night market yesterday. However, it will not renew the high point much, but the pace of the decline below 1,400 won will be quite slow, so this bullish phenomenon, between 1,400 won and 1450, is expected to continue.
◆ Cho Tae-hyun: So it's not very likely that it will soar further, but the high exchange rate itself is likely to continue. The overall macroeconomic impact of this will be discussed in Part 2 in a little while. For now, I'll focus a little on the financial market. Anyway, if the exchange rate goes up like this, In the case of foreigners, this can be connected to the exchange rate. Then, shouldn't this be considered to be more steep when foreigners are leaving our stock market?
◇ Lee Ji-hwan: What is worrisome now is foreigners' withdrawal of funds. In fact, in my stock market, foreigners bought more than 500 billion won for the first time in a while yesterday, but before that, they sold a very large amount. What we thought a little good about the exchange rate was that foreigners left the stock market, but the bond market as a whole was still a net inflow. Although foreigners' buying has decreased as the spread of the bond market has narrowed slightly from the past, it is probably not a very worrisome situation given that the bond market has continued to have net inflows, but if the situation turns into an impeachment like the two previous ones, there will be a temporary exodus of foreigners from the bond market. That's what I'm thinking.
◆ Cho Tae-hyun: Okay. It can be said that the market has become a market with a lot of very unstable variables, but one of the things the CEO often said was that there will be a rebound in the domestic stock market. Wouldn't it be harder to find this opportunity?
◇ Lee Ji-hwan: For the time being, I think it's going to be a little difficult. For one thing, there were two impeachment points recently under former President Lee Park Geun Hye and former President Lee Roh Moo Hyun, and under former President Lee Park Geun Hye, it fell by about 5% in the impeachment process, and under former President Lee Roh Moo Hyun, it fell by about 2.8% at the time of impeachment. However, at the end of the impeachment, during the Park Geun Hye presidency, it was higher than before the impeachment. During the Roh Moo Hyun presidency, it soared more than 16% compared to the low point compared to before impeachment. So, if the impeachment process goes in, the stock market will be adjusted to some extent, but if you look at the example of the stock market rising sharply at the end of this part, this will be very difficult for investors right now, but when uncertainty is removed, the stock market has risen significantly in the past. I think it would be better to take a little comfort in this part.
◆ Cho Tae-hyun: So in a way, can we see this as an opportunity to buy at a low price?
◇ Lee Ji-hwan: If you look at cases twice in the past, you had the right opportunity to buy at a low price.
◆ Cho Tae-hyun: Okay. After some institutional maintenance in the future, the current situation may be a process of checking the floor, so you'd better check this part, too. But one thing I'm worried about is that the government kept talking about value-up because it said it would resolve this part of the Korea discount. The value-up itself is fizzling out, so how do you see it?
◇ Lee Ji-hwan: It seems that this incident has increased the likelihood of losing the trust of foreigners, and we have worked hard on this value-up, although there have been many causes of the Korea discount. If the hard work coincides with this political part and accelerates the movement of foreigners to withdraw from Korean politics anyway, the value-up program is still controversial in terms of content, and in large part, it could be significantly lower than expected as a means of bringing foreigners back in.
◆ Cho Tae-hyun: Okay. I don't think I can tell you much good news, but I'll also point out another negative news. So is the government of Yoon Suk Yeol. The previous government and the inclusion of the MSCI index of advanced countries have put a lot of effort into this part. First of all, what is the MSCI index of advanced countries?
◇ Lee Ji-hwan: MSCI usually categorizes global stock markets around the world into developed countries indexes, emerging markets, and a few trains. And so the global funds that move in conjunction with what we often talk about as passive funds are going to determine the inflow and outflow of funds based on this, and our stock market has actually stayed in the emerging market for the size of the economy. The biggest reason is that if you give an example in the institutional aspect, there is no 24-hour trading in exchange rates and especially foreign currency. In order to overcome this, we have increased the trading hours here, but recently, the ban on short selling has been a huge obstacle.
◆ Cho Tae-hyun: That was big.
◇ Lee Ji-hwan: So, we were constantly being asked to improve the system, but regardless of that, these parts lost the credibility of foreigners this time, and they were incorporated into the index of advanced countries, but the thorny road was a little longer. That's what I'm expecting.
◆ Cho Tae-hyun: Korea is an advanced country, but it can still be seen as an emerging market. It is now classified like this, but it has become a little more difficult to incorporate the MSCI index into advanced countries. That's why the government seems to have taken some measures. Stock market stabilization fund worth 10 trillion won can be activated immediately. I said this, but it doesn't seem to be in a situation where it's operating right now, what do you think, CEO?
◇ Lee Ji-hwan: Since the Monetary Policy Committee is holding an emergency meeting again last night with unlimited funding as an emergency measure and the Bank of Korea as the center, additional measures will probably be taken in the morning. First of all, these are not long-term measures or policies, but rather a loss of trust in a short period of time. Especially since these parts came out in a very difficult part of our stock market, I think the current form of overlapping measures will be more advanced. I think opening the stock market today is better than not doing it. As I said earlier, it is already being reflected in overseas stock markets, but if the stock market does not open, the price distortion will intensify. Considering that, the stock market will be prevented from opening, but the question of whether the policies that are coming out now will be able to restore foreigners' trust in a short period of time is inevitable.
◆ Cho Tae-hyun: So he said a slightly negative story that this is not an improvement to fundamentals, but a temporary effect. The foreign media's response was also negative. What was the reaction on Wall Street?
◇ Lee Ji-hwan: First of all, he's embarrassed. Just as the U.S. emphasized democracy that the White House's response was quite surprising because of the secretive emergency measures, Wall Street has been very concerned about improving short-selling measures, and if we look at what was reported and what's behind it, we also focused on the fact that these institutional aspects are distorting market prices. In that sense, Wall Street's view of this administration is bound to lose credibility once more, especially when funds were withdrawn from the Korean stock market temporarily stayed in the bond market and then flowed back into the stock market. If funds are withdrawn from the Korean stock market, it will be difficult for the Korean financial market in the short term if it becomes an opportunity to completely escape from Korea.
◆ Cho Tae-hyun: Okay. Since martial law has been declared in a democratic country, this would not be seen in a foreign country as a normal country. I think these things will also have a lot of influence. Let me point out one more thing about the stock market. In this situation, political theme stocks always rise again. Lee Jae-myung's related stocks seem to be attracting some attention today, but what do you think about investing in political-themed stocks?
◇ Lee Ji-hwan: First of all, it's very risky. In particular, in this case, the volatility is so great that if you can't respond to a very momentary volatility, it's very difficult to timing even if you know it, and today's theme stocks highlight Lee Jae-myung, Kim Dong-yeon, Kim Kyung-soo, and Han Dong-hoon. I would like to say that you should be very careful about these parts, and the approach after being reported by the media on the data that has already been exposed can take a long time.
◆ Cho Tae-hyun: Actually, the answer may always be to not look at political theme stocks, so I think it's better to approach these things carefully. Let's move on to the next topic. This is also about the asset market. Virtual assets, cryptocurrencies, and crypto currencies were also very shaken. How was the situation?
◇ Lee Ji-hwan: Those who do Bitcoin yesterday must have been very surprised. It was taken momentarily, of course, but it crashed by about 30%.
◆ Cho Tae-hyun: At that time, I couldn't connect well.
◇ Lee Ji-hwan: But the problem is that I can't connect well and I can't sign a deal on the exchange. For example, even if you try to make a transaction momentarily, most of you would have been embarrassed because there are many cases of distortion than expected, so the timing of recognition and the timing of signing the transaction are very different. Usually, if you don't move very quickly in this sudden change, it's better to put up with one tempo if you look at past cases. So, for example, it's the same now, but it's the same if you see the reality that the stock price has risen after the impeachment rather than selling it at the beginning of the impeachment. If you can't respond very sensitively to the volatility, it's better to put up with the volatility if it's a big bad news. Let me tell you this.
◆ Cho Tae-hyun: It might have been better to be sighed instead of selling it in a hurry yesterday. And in fact, the price has recovered a lot, right?
◇ Lee Ji-hwan: Yes, right now, the price range that came out yesterday has recovered a lot. However, what surprised me yesterday when I saw cryptocurrencies, especially Bitcoin, was that the ripple effect of people participating in the Korean stock market was much greater than I thought. I was actually surprised that Korea's problems caused this much instantaneous volatility, although we focused a lot on China as most of the market players in the Bitcoin market. If you look at that, it seems that it is a case where a lot of people have been exposed to the fact that virtual assets are being approached in Korea to some extent from the perspective of investment.
◆ Cho Tae-hyun: Recently, as the news that a lot of kimchi premiums and things like this have been resolved spread, it didn't seem as good as before, but I guess it's not necessarily the case. But the reason why virtual assets have plunged and fluctuated like this is that they will secure stability by selling risky assets, can it be seen as a movement of this dimension?
◇ Lee Ji-hwan: Of course, if this situation is prolonged, for example, if we move on to the impeachment process, there could be a trend. Now, once we get out of the danger zone, and based on whether it's a volatility or a trend, we're willing to sell it again, but if it's a volatility, we're willing to buy it again. If we sell a risky asset and move on to a safe asset, we treat it as a trend, but I don't think it's a trend yet, but since it's so volatile, I think this sentiment was a little strong for a moment.
◆ Cho Tae-hyun: So this virtual asset is kind of meaningless to forecast the price, and it's very difficult, but it's been very strong since the U.S. presidential election. How do you judge the possibility that this strength will continue in the future?
◇ Lee Ji-hwan: I think maybe six months or so in the early days of Trump's administration is the most likely, the highlight, and in fact, we have about 50 million people doing Bitcoin in the United States since Trump came to power. Voters have said a lot to embrace that part, and one of them is that they're going to use a means to accumulate some risky assets that can replace some of the key assets, but that's actually against the function of the dollar. Because it is an act of denying the dollar of the reserve currency.
◆ Cho Tae-hyun: He just threw whatever he wanted.
◇ Lee Ji-hwan: That's right. So the U.S., which now uses the dollar as its reserve currency, will continue to take virtual assets favorably to the end. I think it's a little hard to see it like that.
◆ Cho Tae-hyun: Okay. This part is also bound to be more volatile. Lastly, I mentioned the stock market stabilization fund earlier.What measures should the financial authorities come up with, such as stabilization measures, and what measures can be taken to soothe investor sentiment?
◇ Lee Ji-hwan: First of all, as I said earlier, we need some kind of policy unlimited liquidity supply, but I think it's more important for us to understand that in similar cases like this in the past, the stock market stabilized quickly so that individuals can recognize past cases, but rather than selling stocks during that situation, the stock price rose more when this situation ended =. Of course, this institution now necessitates the expansion of supply to liquidity and the injection of mental stability funds. But another thing is that some policy consideration is needed for foreigners who can give confidence so that these funds do not completely leave Korea when foreigners who have stepped out of the stock market remain in short-term funds.
◆ Cho Tae-hyun: They gave us a hint even if we were one more ahead, but at this point, how should individual investors respond to the market?
◇ Lee Ji-hwan: For example, if you have large KOSPI stocks right now, I think it's better to hold them.
◆ Cho Tae-hyun: Keep it?
◇ Lee Ji-hwan: Yes, and maybe individual-oriented small stocks on the KOSDAQ can lead to individual fear selling, and some foreigners can sell profitable or economic items, but in the case of large stocks, there was an opportunity to buy them in the past. So, if it's something we started now after the stock market fell anyway, you can't buy stocks right now, but it's better to watch the situation while holding the stocks you hold. I'd like to emphasize that it's better not to participate in dumping.
◆ Cho Tae-hyun: Okay. I've even heard that it's better not to participate in dumping. So far, I've looked at the situation in the financial market with Lee Ji-hwan, CEO of the I Asset Economic Research Institute. Thank you for talking today.
◇ Thank you.
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