In the worst employment crisis, stock prices are all-time high… Gyeonggi-do/accompaniment index gap maximum in 11 years

Input 2021.03.08 06:00

Jan. Companion·Leading Index Gap 3.2P… Maximum since January 2010
Leading index to rise in the KOSPI index
Companion index is negative in 8 months
Expert “If the real recovery is delayed, the stock market’s strength may be adjusted”

In January, the number of employed people decreased by 982,000 compared to January of last year, hitting the worst employment cold in 22 months and 1 month since December 1998 (-1283,000 people) during the International Monetary Fund (IMF) financial crisis. Due to the sluggish service industry due to sluggish domestic demand and the sluggish manufacturing industry, production of all industries also fell 1.6% MoM, and received a negative score after eight months.

However, on the 10th of last month when the employment report was released in January, the closing price of the KOSPI index closed at 3100.58P (points). It jumped more than 40% compared to the closing price of the KOSPI (2201.07P) on the same day last year. On January 25th, the KOSPI index recorded an all-time high of 3208.99P. As the spread of Corona 19 has not stopped, social distancing continues, and as a result, domestic economic activities such as shopping, eating out, and tourism continue to decline, but the stock market is marching high enough to raise concerns about’bubble’.

The stock market overheating, contrary to the real economy, is confirmed by the fact that the gap between the cyclical fluctuation of the leading index and the economic coincidence index, which shows the current and future economic trends, has widened to the highest level in 11 years since January 2010. The cyclical fluctuations of leading indexes reflecting future prospects such as the KOSPI and economic sentiment indexes are rising, while the accompanying index, which reflects the current economic trends such as the number of employed and the service industry production index, stagnates and declines, widening the gap. Macroeconomic experts are wondering how long the stock market will continue to overheat amid the continuing real economic downturn.



An empty alley at Gangnam Station in Seoul./Yonhap News

According to the National Statistical Portal (KOSIS) of the National Statistical Office on the 8th, the cyclical fluctuation of the leading economic index, which can measure the economic outlook for the next three to six months, reached 102.7, the highest in 10 years and 11 months since February 2010 (102.5). . On the other hand, the cyclical fluctuation of the economic coincidence index, which shows the current economic flow, remained at 99.5, down 0.2 points (P) from last December.

As the improvement of the economic coincidence index slowed compared to the high-altitude economic leading index, the gap between the leading index and the accompanying index widened to 3.2P. The gap between the two indices widened to the highest level since the 3.5P in January 2010. The leading index and the companion index have risen together since June of last year, but the gap between the two indices was only 11 years since the companion index failed to keep up with the rise of the leading index, which was driven by a surge in stock prices. To the maximum.

Experts explain that the gap between the two indicators showing the current economic and economic outlook trend is widening, “meaning that the gap between financial indicators such as the real economy and stock prices is that large.” Production, consumption, and employment, which determine the current economic trend, are not getting out of the sluggish situation. As the KOSPI rises for a long time, the expectation that the economy may enter an expansion phase is growing.

In fact, many of the factors that make up the economic coincidence index were negative in January. The number of non-agricultural workers decreased by -0.5%, the construction cost decreased by -1.5%, and the service industry production index decreased by -0.1%. The increase in the mining industry production index (0.5%), imports (0.6%), and retail sales (0.4%) did not prevent the indicator from falling.

On the other hand, the leading economic index, which has risen for eight consecutive months since June of last year, increased its rise thanks to the KOSPI index, which rose 9.6% over the past month. In addition, the growth rate of shipments compared to manufacturing stocks (0.7%P) and the economic sentiment index (1.4%) contributed to the rise of the leading index.



Hyundai Economic Research Institute

An official from the National Statistical Office said, “Because the KOSPI index has risen so large, a situation where the leading index rises more than the accompanying index has been produced.” Explained.

In theory, if the leading index rises, the accompanying index rises after several months. This is because companies increase investment and production as expectations for economic improvement in the future increase, and the employment situation improves accordingly. However, if stock prices rise faster than the real economy recovers, the pace of the leading index may slow down. This is because concerns about the’financial market bubble’ increase when stock price rises are not supported by the real economy, and a sense of wariness about the stock market overheating can lead to a stock market adjustment atmosphere.

In January 2010, the gap between the cyclical fluctuations of the accompanying and leading index recorded 3.5P, and then began to narrow to 2.9P in February and 2.1P in March of that year. Expectations for an economic recovery are interpreted as the leading index turned downward as the pace of economic improvement did not follow. However, after June 2011, a reversal occurred in which the cyclical fluctuation of the leading index fell below the coincident index, and from 2013, the economy entered a recession phase.

Macroeconomic experts view that if the gap with the stock market cannot be narrowed through the improvement of the real economy, the economy will eventually enter into a long-term recession. It is difficult for the financial bubble to persist, such as overheating in the stock market, not accompanied by a real economic recovery.

In a report released on the 7th, Hyundai Economic Research Institute expressed this concern, saying, “In January, the cyclical fluctuation of the coincident index turned to a downtrend, making the economic recovery weaker.” He said, “At this stage, it is difficult to discuss stagflation, which means low growth and high prices, but it is difficult to rule out the possibility as the recent economic downturn continues and inflation pressure is increasing.”

Stagflation is a new term that combines stagnation and inflation, which means economic recession. The real economy is a term that refers to a situation in which inflation pressure increases due to overheating in the asset market such as stocks in a situation that cannot escape from the recession. In such a situation, inflation may rise further if economic stimulus measures such as interest rate cuts are implemented, and a tight monetary policy to control inflation may lead to a situation in which the real economy sinks further.

Experts are concerned that the pandemic continues, with the number of corona 19 confirmed cases rising and falling on average per day in March. Despite the start of the corona 19 vaccination, the pandemic is not ending, and the economic recovery may be slower than expected. If stock prices such as the KOSPI index decline, economic sentiment will deteriorate, and there is also a prospect that these factors may adversely affect the overall economic flow. The recent surge in US Treasury yields and rising international oil prices are also pointed out as factors that could adversely affect future economic improvement.

A high-ranking official at a private economic research institute said, “The asset market is showing an overheating pattern such as stock price rise due to so much liquidity release due to interest rate cuts to cope with the corona and increase in fiscal expenditures. “It was the history of the market,” he said, “if the corona spread is not caught and economic improvement is not expected, the stock market can also come into a correction phase.”

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