Most major central banks are concerned about the impact of the Delta variant on economic activity. As a result, some are very cautious about reducing their liquidity injections into the markets, while others are not even considering doing so, at least in the short term.
The Bank of Korea’s decision to raise key interest rates when the number of infections in the country is at an all-time high is courageous. However, it is the first major economy to make such a decision and therefore runs counter to the prudence advocated everywhere else.
The reasoning of the Seoul authorities is interesting: Despite the pandemic, they are confident that the recovery will continue. On the other hand, they are concerned about inflation which, at 2.6%, has been at its highest level for almost a decade and exceeds its 2.0% target. They are also concerned about the strong growth in household credit and skyrocketing residential housing prices. These are very different priorities from those adopted by the US’s Fed or the ECB in the Eurozone.
Of course, at 0.75% after an increase of 0.25%, South Korean key interest rates remain very low in absolute terms. But this decision marks a turning point in a continent struggling with the new wave of the pandemic.
In addition, the Korean authorities are preparing new laws that would regulate the activities and payments of app stores (virtual app stores), Apple and Google, mainly the commissions they charge to vendors on these platforms and other barriers to competition. This could jeopardize the relationship between Seoul and Washington, which is always ready to rescue its technology sector.
Naturally, investors do not appreciate this more expensive credit. They also fear an increase in the won (which is now slightly undervalued against the euro), weighing the competitiveness of Korean exports. However, the deterioration of relations with Washington does not result in difficulties for the access of Korean products to the American market.
Add to this the impact of the pandemic, and we have a better understanding of the difficulties of the Seoul Stock Exchange in recent weeks. Nevertheless, the country retains enormous potential. Very innovative in the sectors of the future, very present on the 5G, semiconductors, batteries, it certainly has the means to get out, especially since the growth remains strong.
So please take advantage of the current vacuum shift to invest in it. Check all the information you need about our portfolio.