NABO Economic Trends & Issues (No. 78)
Published on 17 April 2018
Published by Macro-Economic Analysis Division of the Economic Analysis Bureau
I. Economic Trends
The Korean economy has recently been exhibiting signs of weak production activity and domestic demand amid the ongoing decline in exports. Exports in March declined for four consecutive months as the global economic recession persisted and major exporting goods continued to experience a price drop, while all industry production (IAIP) recorded a drop of –1.9% YoY in February due to the export decrease and weak domestic demand. Retail sales in February were weak in terms of both durable and non-durable goods, while the plant and equipment investment index recorded a MoM double-digit drop (-10.6%).
Ⅱ. China’s Economic Policy Direction and Economic Forecast Seen through the Two Sessions (两会) of 2019
While the volume of foreign equity investments which account for at least 30% of the domestic stock market has been declining since 2018, such foreign investments were concentrated in the large-cap, telecom and financial sectors; with an increasing trading turnover ratio. An empirical analysis of the impact of foreign investment on the domestic stock price return ratio and volatility revealed that foreign net buys have a statistically significant impact on stock price return ratio and volatility. Therefore, various measures to reduce risk factors need to be pursued while ensuring caution against the potential risks posed by foreign equity investments.
Ⅲ. The Status and Characteristics of Economic Sector-Specific Financial Transactions Seen through the Flow of Funds Accounts
In the Korean and Chinese exchange rate and stock markets, the correlation between the financial markets of the two countries has recently been increasing. In the bond market, the Korean market appears to have had a higher correlation with the US bond market than with the Chinese bond market since November 2018. According to spillover effect analysis on the return ratio and volatility between the Korean, US and Chinese financial markets, the won-to-dollar exchange rate volatility and stock price return ratio is heavily affected by the Chinese financial market, whereas treasury bond interest rate volatility is affected more by the US than China.