It has been confirmed that the Financial Supervisory Service has made a report that diagnoses’stock market overheating’ when Korea’s KOSPI reaches 3300.
The overheating of the stock market means that the stock price has risen excessively compared to the Korean economy. It is noted that it is very unusual for the Financial Supervisory Service, which is in charge of supervising the soundness of financial institutions, to analyze a specific stock price level in the Korean economy.
According to the financial sector on the 11th, the Financial Supervisory Service used the macroeconomic analysis model published in the “Predictable Financial Crisis” published in June 2020 by professors Robin Greenwood, Samuel Hanson and Andrei Schleiper at Harvard University in August of last year to determine the level of KOSPI overheating. Measured. As a result, it was concluded that there is a possibility of a bubble (bubble) if the KOSPI rises to the 3300 line. The FSS’s analysis was conducted in a way that measures how much financial risk has increased depending on the level of credit expansion. The accuracy of the numbers was also reviewed by communicating directly with the authors of the papers that developed the model. The Financial Supervisory Service derived the KOSPI overheating level by applying household credit, corporate credit, housing prices, and stock prices as of last June.
An official from the Financial Supervisory Service said, “As a result of applying the data as of the end of June last year to the model published by Harvard University professors in the paper published in June of last year, it was found that the KOSPI 3300 line was at the level of overheating.” “The results were shared with internal executives.” said.
It was confirmed that an overseas paper that was the basis of the FSS analysis warned of the possibility of a financial crisis caused by a rapid increase in liquidity.
The authors said, “The combination of rapid credit expansion and asset prices over the past three years has increased the probability of entering the financial crisis over the next three years from 7% to 40% in peace. It is similar to what other countries have shown signs of crisis.” On this day, KOSPI ended at 3148.45, down 0.12% from the previous trading day.
On this day, the institution went on a net sale of 3,702.6 billion won, the largest ever, and foreigners also net sold 712 billion won, but the index remained at a weak level as individual investors defended with the record-highest net purchase of 4.45 trillion won. The highest record for net sales of previous institutions was KRW 1.973.4 trillion (29th of last month). Experts also agreed that the current stock price level has overheated. So-young Kim, a professor of economics at Seoul National University, said, “The stock price rise and economic growth do not always coincide, but the KOSPI rose too rapidly even compared to the level before Corona 19. As the stock price cannot endlessly rise, the system risk is You have to be prepared for the possibility of this happening.”
The FSS will update the report by entering data for December based on the results of this analysis. An official from the Financial Supervisory Service said, “In terms of the fact that companies based on technological prowess have increased their share of the market capitalization, the stock market in Korea seems to have a different constitution from the past,” he said. “It is difficult to judge whether it is overheating simply based on the numbers.” He added, “We plan to measure accurate figures again in the first and second quarters of this year.” Along with the concerns of the Financial Supervisory Service, the stock market produced a roller coaster market on this day. At 10:15 am, the KOSPI broke through the 3200 line by shooting 3266.23, and then fell to 3099.69 at 1:30 pm.
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