On June 10, the news came out that the U.S. consumer prices in May rose a whopping 8.6% year on year, which will likely drive the U.S. Fed to raise the benchmark interest rate by a large margin this week. Upon the news, the KOSPI plunged 3.5% and KOSDAQ 4.7%, respectively on Monday morning. The stock markets elsewhere, including the EU, Japan and China were also hit. If the Fed continues to raise the interest rate until the year end to tackle inflation, a global economic recession seems hard to avoid.
The stock market was heavily affected by the U.S. consumer prices because they rose further, defying the expectations that they would slow down in May after hovering over 8% for two consecutive months. However, the prices jumped higher than expected and U.S. gas prices breached record-high five dollars per gallon, while U.S. consumer confidence dampened more apparently due to high prices. The Financial Times found that 70% of the 49 U.S. economists it surveyed forecast that the U.S. economy may face an economic downturn in 2023. The European Central Bank, which has been delaying interest rate increase to boost economic recovery, announced it will raise the rate in the coming month, giving into high prices pressure.
U.S. monetary tightening and high inflation aside, the Korean economy is faced with multiple headwinds, including trade deficit from higher oil and raw material prices, disrupted logistics and production due to cargo truckers' strike and slump in semiconductor business, one of its signature exports. Consumption is plummeting in China, one of Korea's largest trading partners. Even worse, the neighbor may be imposed with yet another lockdown as COVID-19 is resurging.
Foreign investor exodus is accelerating as well. They have been selling Korean stocks for the last five months, and sold more than 500 billion Korean won worth shares on Monday alone. Supply and demand index for Seoul apartments sales dropped for the past five weeks consecutively due to soaring interest rates while actual housing transaction cases dropped to one third compared to last year. Meanwhile, Bitcoin fell below 26,000 dollars on Monday. All asset markets such as stocks, real estates and cryptocurrency look like simultaneously grinding to a halt.
It is time to brace for asset bubble burst as post-pandemic money tightening starts. Some warn that Korea's asset market is inflated to the level higher than the tech bubble in the early 2000s. It is advisable to avoid any risky investment, which depend greatly on luck. The government should also come up with policy measures envisioned this month that can reduce much of the negative impact on local asset markets. The market may fall into a tumult if the government fails to send signal that it has full control over the current economic situation.