NABO Economic Trends & Issues (No. 77)
Published on 25 March 2018
Published by Macro-Economic Analysis Division of the Economic Analysis Bureau
I. Economic Trends
While the Korean economy has recently rebounded in terms of production and investment, the economy continues to slow down as export increase rates decrease further and economic indicators continue to fall. Growth in consumer prices remained lower than 1% for two consecutive months as agricultural, livestock and fisheries prices began to drop and the price declines in petroleum-related products is further aggravated. Treasury bond interest rates (3-year maturity) slightly decreased MoM due to concerns about an economic slowdown in Korea and abroad.
Ⅱ. Impact of Stock Investments by Foreign Shareholders on the Domestic Equity Market
Entering 2018, as the investment volume of foreign shareholders holding at least 30% of domestic stocks exhibited a declining trend, equity investments by foreign shareholders appeared to be focused on large-cap stocks, the telecommunication and financial sectors, with increased trading turnover. An empirical analysis of the impact of foreign shareholder investments on the return ratio and volatility of current stock prices revealed that net foreign buys have a statistically meaningful impact on stock price return ratios and volatility. As such, diverse measures to mitigate relevant risk factors need to be continuously sought out while also being mindful of the potential risk factors posed by foreign shareholder stock investments.
Ⅲ. Analysis of the Synchronization and Spillover Effects of the Korean, US and Chinese Financial Markets
Recently, the correlation between the Korean and Chinese currency exchange rates and stock markets has been gradually increasing, while in the fixed income market, the Korean market has exhibited a higher correlation with the US fixed income market compared to that of the Chinese fixed income market since November 2018. According to an analysis of the spillover effects of return rates and volatility among the Korean, US and Chinese financial markets, won-to-dollar exchange rate volatility and stock price return ratios were found to be significantly influenced by the Chinese financial market, whereas treasury bond yield volatility is influenced more by the US than China.