‘If the rate of inflation increases, pressure on the liquidity market'[인플레 경고등]

■Inflation and stock market impact

“The flow of the economic recovery process

It is not the level of burden on the stock market right now.”

International oil prices and interest rates are on the rise, leading to signs of inflation, but stock prices are interpreted that the current inflation trend is not enough to burden the capital market. This means that inflation is rising during the economic recovery process, not abnormal inflation. However, there are also concerns that if rapid inflation occurs in the future, the liquidity market that led to the recent rally in the asset market may end.

According to Koscom on the 16th, on the 15th, the break-even inflation (BEI) of 10-year KTBs in Korea was 1.185% per year. Compared to the close to 1.3% per annum at the end of last month, it has decreased, but it has remained at a high level since it reached 1.2% per annum in October 2018. The US 10-year BEI also recorded 2.21% per year on the 12th (local time), showing the highest level since 2014. The BEI is the current KTB rate minus the rate of inflation-linked bonds. The higher the BEI is, the higher the expectation for inflation is.

In domestic stock prices, the view that the recent rise in inflation and interest rates is not at a level that will burden the stock market is predominant. In the process of recovering from last year’s new coronavirus infection (Corona 19) from the worsening economy, the price index is also rebounding gently. In fact, despite the rising interest rate, the KOSPI index continues to rise this year, breaking through the 3,000 line and then re-breaking the 3,200 line.

Park Sang-hyun, a researcher at Hi Investment & Securities, said, “On the one hand, there are voices of concern that increasing inflationary pressure can stimulate market interest rates and provide a basis for adjustment of asset prices such as stock prices. There is.”

There is also an analysis that the stock price has risen during the past interest rate rebound. In a report on the 15th, Shinhan Investment Corp. concluded that both the KOSPI and Standard & Poor’s (S&P) 500 indexes rose during the past six interest rate hikes. Kang Song-cheol, a researcher at Shinhan Investment Corp. said, “In terms of the recovery period after the crisis and the low level of inflation expectations, the current period is similar to the rise in interest rates before the dot-com bubble after the 1998 foreign exchange crisis. He explained.

For the time being, safety assets, government bonds, are weak, and there will be opportunities for relatively high-risk assets such as corporate bonds and raw materials. In particular, in the case of KTBs, as interest rates increase, their value decreases, so brokerage firms rank it as the top priority for reducing their weight. Hye-young Koo, a researcher at Mirae Asset Daewoo, interpreted, “In the economic recovery phase, the portfolio strategy in bonds will be toward risky assets, and corporate bond investment will stand out compared to government bonds.”

However, there are also concerns that a steeper inflation rate could put a burden on the capital market in the future. The central bank’s tightening policy to curb inflation could end the’liquidity market’, which has driven the asset market rally. Seo-young Choi, a researcher at Samsung Futures, interpreted, “If the risk of a surge in inflation becomes visible, the US Federal Reserve System (Fed and Fed) has no choice but to turn to a policy to control inflation.”

/ Reporter Shim Woo-il [email protected]

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