The Bank of Korea (BOK) stated on July 9 that the possibility of a structural downturn in domestic stock prices is limited.
In a business report submitted to the National Assembly's Strategy and Finance Committee on the same day, the BOK presented this view, citing that upward revisions to semiconductor companies' operating profit forecasts are continuing and that the government is making efforts to improve capital market systems.
Regarding the trend of the KOSPI, the BOK assessed that stock prices have fluctuated significantly since May due to factors such as foreign profit-taking and portfolio rebalancing at the end of the half-year.
The bank further projected that future stock prices may continue to experience high volatility, influenced by concerns related to the artificial intelligence (AI) industry, the monetary policy stances of major countries, and changes in global capital flows.
The BOK also offered a positive outlook, stating that the global semiconductor market is expected to show an expansionary trend for a considerable period due to the expansion of AI application areas and related infrastructure investment.
This analysis takes into account the increased demand for computation due to the spread of AI, continued investment by major big tech companies to secure dominance, and constraints on supply expansion due to high process complexity.
However, the BOK noted that adjustments in the financial market due to concerns over AI profitability, the reduction of real investment by big tech companies, and energy bottlenecks are downside risks.
Regarding the direction of monetary policy, the BOK reiterated its position that it judges a need to raise the base interest rate at an appropriate time in the future.
The reasons cited include the fact that growth continues to show a solid trend due to the favorable semiconductor market, while inflation is expected to exceed the target level for a considerable period, and there is a need to be mindful of financial stability risks.
Regarding future inflation trends, the BOK predicted that demand-side inflationary pressure may gradually increase due to improved income and asset conditions and expanded investment resulting from the favorable semiconductor market.
The bank further forecasted that while prices of petroleum products such as gasoline will fall after the second half of the year, the upward trend in prices for other industrial products and personal services will expand, causing the inflation rate to continue exceeding the target level.
Regarding housing prices and household debt, the BOK stated that the recent metropolitan housing market has continued to see high price increases in Seoul and some parts of Gyeonggi Province, adding that housing transaction volume in the metropolitan area continues to show an increase exceeding the long-term average as buying interest continues, centered on low-to-mid-priced homes.
In particular, apartment prices in Seoul showed a high growth rate of 10 to 15 percent on an annualized basis.
The BOK pointed out that as metropolitan housing prices continue to rise and pressure for household debt growth increases, it is necessary to remain vigilant about related risks such as instability in the housing market and the possibility of individual leveraged investment.
Regarding the recent won-dollar exchange rate, the BOK assessed that it has risen rapidly since May due to continued uncertainty in the Middle East, expectations for interest rate hikes by the U.S. Federal Reserve, and large-scale net selling of domestic stocks by foreigners for rebalancing and profit-taking purposes following stock price gains.
The bank added that the depreciation is larger than that of major currencies due to the impact of foreign net selling of stocks, and stated that it will continue its efforts for market stability while being mindful that market volatility could increase depending on external risks.
In addition, the BOK presented the position that stablecoins need to be introduced while considering not only the industrial aspect but also the impact on the macroeconomy, such as monetary and foreign exchange policies and financial stability, as well as potential risks.
The BOK emphasized that when preparing legislation for won-denominated stablecoins, it is important to establish safety devices such as prioritizing issuance by bank-centered consortia and creating a statutory policy organization among relevant agencies.
On this day, BOK Governor Shin Hyun-song is set to attend his first parliamentary business report since taking office in April.
(Photo: Yonhap News)