Kim Young-ik is a professor at Sogang University’s Graduate School of Economics.
“The stock market rebounds in the short term… Next year will be a tougher time”
“Economic indicators such as GDP are too undervalued… In the short term, it will rise above 2,600”
“The possibility of a global economic recession centered on the United States … The possibility of a negative economy in the first half of next year is high”
“Signs of falling house prices in the U.S. When house prices fall, consumer sentiment shrinks”
“Even if the economy is bad, there are some stocks that are differentiated… Especially a company that pays a lot of dividends”
“Samsung Electronics is undervalued right now… If it drops further in the first half of next year, then actively buy it”
“If bond yields fall, bond prices rise… We need to raise the ratio of bonds to 30% of assets”
“House prices are overestimated. A turning point in Seoul as well.”
“There is no soft landing in asset prices… House prices will fall by 30-40%”
◀ anchor ▶
Kim Young-ik is a professor at Sogang University’s Graduate School of Economics. welcome.
◀ Young-Ik Kim/Professor, Graduate School of Economics, Sogang University ▶
hello?
◀ anchor ▶
You are famous for being a stock market pessimist. I know it’s called Dr. Doom, what’s the situation now? How do you see the professor? Is the bottom approaching now? Are you still far away?
◀ Young-Ik Kim/Professor, Graduate School of Economics, Sogang University ▶
In the short term, I think it will rebound. There still seems to be room for a drop. Next year will be a particularly difficult time. In particular, it is highly likely that the first half of next year will bring an economic downturn and the stock market will get worse again.
◀ anchor ▶
In the short term, it will rebound slightly and then turn off again, is this how you see it?
◀ Young-Ik Kim/Professor, Graduate School of Economics, Sogang University ▶
That’s right. Now it has fallen slightly below 2,300 and is rebounding at 2,400, the KOSPI. In the short term, we expect it to rise above 2,600. The reason is that our stock price has fallen too much in an overly short period of time. So last year, the KOSPI went up to 3,300 and then fell more than 30% to 2,300. Now, exports, economic indicators, various GDPs, etc. are too undervalued in these economic indicators, so it is likely to rebound a little as the undervaluation is resolved to some extent.
◀ anchor ▶
But the game itself is entering the reception, right?
◀ Young-Ik Kim/Professor, Graduate School of Economics, Sogang University ▶
That’s right. Now all economic indicators are getting worse. Our consumption and exports are declining, and especially because of our exports, we are experiencing some economic growth now, but next year, the global economy, mainly the US economy, may fall into recession. Then, as exports decrease, it is highly likely that our economy will grow negatively in the fourth quarter of this year and the first half of next year.
◀ anchor ▶
It’s a very dark outlook. However, the US is still bearable with various indicators and the US economic system is strong. It is unlikely that such a strong recession will come. How do you see it?
◀ Young-Ik Kim/Professor, Graduate School of Economics, Sogang University ▶
It is now, but the truth is, the US economy grew negatively in the first quarter. The second quarter will also be negative. Consumption is increasing, but income is very negative. However, US consumption is likely to decline in the future. U.S. bond yields are soaring now. The stock price fell a lot in us, but the US also fell a lot. And the rest is the price of a house in the US. House prices are showing signs of falling recently. When house prices fall, consumer sentiment is bound to shrink. As prices rise, real purchasing power decreases. And the higher the interest rate, the less consumption will inevitably have a time lag. Consumption accounts for 74% of U.S. gross domestic product (GDP). Perhaps in the first half of next year, the US economy is likely to plunge into a recession as consumption declines. Several economic indicators are predicting this. If we sometimes see in the media, the difference between the long-term and short-term interest rates in the US has been reversed.
◀ anchor ▶
has been reversed
◀ Young-Ik Kim/Professor, Graduate School of Economics, Sogang University ▶
The 10-year Treasury yield is lower than the 2-year Treasury yield. There was a slight time difference in the past, but when it reversed, there was a recession. It also signals a recession in the US economy.
◀ anchor ▶
Have recessions come without exception when short- and long-term interest rates are inverted? There are exceptions, but most of them?
◀ Young-Ik Kim/Professor, Graduate School of Economics, Sogang University ▶
There were no exceptions.
◀ anchor ▶
Were there any exceptions?
◀ Young-Ik Kim/Professor, Graduate School of Economics, Sogang University ▶
For example, the US economy is very good in 2019, but the difference between long-term and short-term interest rates was also inverted. So this time it’s different. The economy was so good back then. But of course, in 2020, Corona 19 came and fell into a recession, but even that is what the bond market predicted in advance.
◀ anchor ▶
The predictive power of the bond market is the most reliable.
◀ Young-Ik Kim/Professor, Graduate School of Economics, Sogang University ▶
The bond market, I’ve been studying economics for a long time, but I’m very smart. So, from the second half of last year, I’ve been saying this, the difference between long-term and short-term interest rates in the bond market has been narrowing since May of last year. And there is a difference in cyclical fluctuations at the National Statistical Office, which predicts the economy in the future.
◀ anchor ▶
So, although the professor is not a stock expert, I still have to ask, what should an investor do now?
◀ Young-Ik Kim/Professor, Graduate School of Economics, Sogang University ▶
In the short term, I think the stock price will go up a bit. I think it will go up to 2,600, 2,700. I don’t think there’s any need to downsize the stock right now. However, in the first half of next year, it could be a notch lower than 2,300 this time as the economy plunges into recession. Of course, our stock is too undervalued in the long run. So, since it is undervalued, it would be good to buy and hold stocks in the long term, but if I want to own 100 for example, then it would be better to buy 30 for now or 70 in the first half of next year.
◀ anchor ▶
When the worst recession came. But what about the downturn in that field? in the eyes of the professor. Isn’t the field also different for every situation? Because not all stocks are the same.
◀ Young-Ik Kim/Professor, Graduate School of Economics, Sogang University ▶
Exports and technology-related stocks fell a lot. I think it will drop further in the future. However, even in this situation, companies that pay a lot of dividends, such companies, are not falling. Typical stocks are telecom stocks and KT stocks. The KOSPI has fallen more than 20% this year. Shouldn’t that stock keep us using our mobile phones and pay our telecommunications bills even when the economy is bad? So, those stocks went up about 20%. Even if the economy is bad, there are some sports that are differentiated like this. A company that pays high dividends.
◀ anchor ▶
A company that pays high dividends. So, what should Samsung Electronics, who is called our national stock, do?
◀ Young-Ik Kim/Professor, Graduate School of Economics, Sogang University ▶
Samsung Electronics is overvalued right now. It’s rebounding a bit, but in the long run, it’s become very cheap. But every year when I fall into a recession, even Samsung Electronics, no matter how good, can’t get out of the economic phase. There is a high possibility that it will fall once more in the first half of next year, but I think that it is not the time to be active at that time.
◀ anchor ▶
But it’s not really accurate to say that this is a prediction.
◀ Young-Ik Kim/Professor, Graduate School of Economics, Sogang University ▶
Yes.
◀ anchor ▶
It would be close to impossible. If I just mechanically interpret the professor’s prediction, there will be a short-term rise, so for example, can I use this so-called expression now? ?
◀ Young-Ik Kim/Professor, Graduate School of Economics, Sogang University ▶
In fact, it’s really hard to predict when.
◀ anchor ▶
Yes?
◀ Young-Ik Kim/Professor, Graduate School of Economics, Sogang University ▶
As I look at various models, they rise considerably in August and September, and then fall again at the end of the year and early next year, so I think you can reduce the weight a little in this upward phase and actively respond in the first half of next year.
◀ anchor ▶
It rises in August and September and will turn off again around the end of the year. Is that model the model your professor did like this? Or did you see another hydraulic model?
◀ Young-Ik Kim/Professor, Graduate School of Economics, Sogang University ▶
I have developed several models to predict almost all economic variables. In fact, the stock price will drop a lot this year. Then Gyeonggi-do will slow down. I spoke with the figures from my model.
◀ anchor ▶
So, according to the model developed by the professor, there will be a slight short-term rebound in August and September, and then fall into a slump towards the end of the fourth quarter.
◀ Young-Ik Kim/Professor, Graduate School of Economics, Sogang University ▶
That’s right.
◀ anchor ▶
Professor is famous for his high preference for bonds. Why do you trust bonds so much? nothing else
◀ Young-Ik Kim/Professor, Graduate School of Economics, Sogang University ▶
When the economy is bad, interest rates fall. The Bank of Korea is raising interest rates right now, but the market interest rates are rather falling. A typical example is a 10-year government bond issued by the government. This is because the yield dropped from 3.8% to 3.3% a while ago. This means that when bond yields fall, bond prices rise. However, in my view, bond yields are likely to fall further in the future.
◀ anchor ▶
Is that so?
◀ Young-Ik Kim/Professor, Graduate School of Economics, Sogang University ▶
Bond yields are very high for future economic growth, future inflation, and our current inflation. However, when the economy is in recession, demand shrinks, so the inflation rate will inevitably decrease. So, I raised the Bank of Korea base rate several times, one or two more times, but the market interest rate, which reflects the economy, has already started to fall.
◀ anchor ▶
Is that so?
◀ Young-Ik Kim/Professor, Graduate School of Economics, Sogang University ▶
It will drop further in the future. When bond yields fall, you can make a profit by investing in bonds. And bonds account for only 2.1% of our household assets. among financial assets. It’s a bit low in my opinion.
◀ anchor ▶
So, to what extent do you think that raising the weight of bonds is stable in your portfolio?
◀ Young-Ik Kim/Professor, Graduate School of Economics, Sogang University ▶
I’m over 30% at this time, and now it’s 2.1%, which is too low. I think it would be ok to raise it up to 30%. If you buy a bond and the stock price drops a lot next year, of course, that’s my prediction. That way, you can sell bonds and buy back stocks. At that time, it would not be too late to increase the proportion of those stocks.
◀ anchor ▶
There are a lot of things I want to note, but I have a lot to say, so increase your bonds once and then switch to stocks next year when you fall into a recession.
◀ Young-Ik Kim/Professor, Graduate School of Economics, Sogang University ▶
That’s right.
◀ anchor ▶
What is the house price, you see?
◀ Young-Ik Kim/Professor, Graduate School of Economics, Sogang University ▶
House prices are overrated in my opinion.
◀ anchor ▶
go now
◀ Young-Ik Kim/Professor, Graduate School of Economics, Sogang University ▶
When I looked at the trend, it started falling apart from cities such as Daejeon and Daegu. Seoul seems to be at a turning point now. Once it breaks, it lasts quite a long time. So what are the factors at the turning point? When stock prices fall, house prices fall with a time lag, and then interest rates have risen a lot lately, haven’t they? Loans were regulated. These factors influence house price conversion. However, the biggest influence on house prices is the game. In particular, the National Statistical Office has a representative indicator of the current economy called the coincident index cyclical change value. That seems to have peaked in February of this year. once it falls It has circulated 11 times in the past and has fallen on average in 19 months. The economy is now entering the beginning of a contraction phase.
◀ anchor ▶
Do you think it’s early?
◀ Young-Ik Kim/Professor, Graduate School of Economics, Sogang University ▶
If this happens, house prices are now on a downward trend, but considering this kind of economy, it can last quite a long time, I think.
◀ anchor ▶
Saying it lasts a long time is a mob.
◀ Young-Ik Kim/Professor, Graduate School of Economics, Sogang University ▶
The width can also be quite a bit deep.
◀ anchor ▶
How deep do you expect it to be, usually?
◀ Young-Ik Kim/Professor, Graduate School of Economics, Sogang University ▶
I’m telling you, there are no asset prices or soft landings. So, the stock price last year was overvalued by 40% in various economic indicators I see, and has now plummeted after being undervalued by 14%. The same will be true for house prices. I’m thinking it’s 3, 40% overrated.
◀ anchor ▶
Are you now?
◀ Young-Ik Kim/Professor, Graduate School of Economics, Sogang University ▶
Yes, it can drop that much, I see.
◀ anchor ▶
3, 40% There is no such thing as a soft landing. After a certain moment, it will fall off the hook, are you saying?
◀ Young-Ik Kim/Professor, Graduate School of Economics, Sogang University ▶
Yes. When asset prices fall, you underestimate the underlying economic conditions. Just as stock prices are now, so will house prices. There were times when apartment prices in Seoul fell by 3 or 40% in 2009 and 2010. This is a typical case of a hard landing. I see that it could happen.
◀ anchor ▶
If so, what if the house price goes down like this? If you look at the current tax reform plan, what is this? Why give another opposite signal, my country? There are people who talk like this, but what do you think of it, Professor?
◀ Young-Ik Kim/Professor, Graduate School of Economics, Sogang University ▶
I think it’s very dangerous for the state to buy a house now. That was overrated. Haven’t these people in their 20s or 30s recently bought a lot of houses? Recently, I see that the proportion of purchases with them has decreased significantly. Of course, the purpose of the government’s policy is to stabilize house prices downward while the government does not continuously regulate house prices. But what I am saying is that there is no downward stabilization of asset prices.
◀ anchor ▶
fall off?
◀ Young-Ik Kim/Professor, Graduate School of Economics, Sogang University ▶
When it goes up, it rises and when it falls, it falls more than the appropriate level.
◀ anchor ▶
Then the professor says that asset prices, especially house prices, will fall very sharply at some point.
◀ Young-Ik Kim/Professor, Graduate School of Economics, Sogang University ▶
I see it that way.
◀ anchor ▶
Do you see it like this?
◀ Young-Ik Kim/Professor, Graduate School of Economics, Sogang University ▶
So, no one can predict the width and how long it will fall.
◀ anchor ▶
That would be it.
◀ Young-Ik Kim/Professor, Graduate School of Economics, Sogang University ▶
It can drop by 3, 40%. For the next three years or so, the real estate market is in a contraction phase.
◀ anchor ▶
3 years or so? What is the exchange rate? How do we export?
◀ Young-Ik Kim/Professor, Graduate School of Economics, Sogang University ▶
The recent exchange rate was over 1,300 won. That’s because the dollar has risen a lot. The US raises interest rates a lot. Then because of the Ukrainian war, because of the declaration, the dollar went up. However, our trade deficit is running, but the current account is important. The current account is not a deficit this year. A current account deficit means that money comes in in dollars. And our foreign exchange reserves are shrinking, but we’re still over $430 billion. Considering this, I think 1,320 won is a high exchange rate. What would be the appropriate level for our exchange rate in the current situation? In fact, it is very difficult to estimate, but when I estimate it with various models, it comes out to 1,250 won. I think it will be approaching 1,250 won soon.
◀ anchor ▶
Our money is too cheap, now?
◀ Young-Ik Kim/Professor, Graduate School of Economics, Sogang University ▶
That’s right. Conversely, the value of the dollar is excessively high.
◀ anchor ▶
Excessively expensive If so, there will be adjustments soon, should I look at it like this?
◀ Young-Ik Kim/Professor, Graduate School of Economics, Sogang University ▶
Yes, I think it will show up soon.
◀ anchor ▶
What effect will the European Central Bank’s 0.5% increase yesterday have on the exchange rate?
◀ Young-Ik Kim/Professor, Graduate School of Economics, Sogang University ▶
There’s a little bit of an impact. The Bank for International Settlements is now evaluating the appropriate level of exchange rates in each country. As of June, the dollar was overestimated by 28%, the euro was undervalued by 12%, and the yen was undervalued by 40%.
◀ anchor ▶
It’s underestimated.
◀ Young-Ik Kim/Professor, Graduate School of Economics, Sogang University ▶
The dollar is overvalued. So the dollar strengthened as the US raised interest rates and the interest rate gap between the US and Japan, the US and Europe, and the US widened. Now, if the euro also raises interest rates, it is highly likely that the difference between the interest rates in the US and Europe will narrow, and then the US economy will fall into a recession next year. Even the US-Japan interest rate differential is likely to decrease in the future. Therefore, the value of the dollar, which was abnormally overvalued, will fall a little, and the value of the euro will rise, and in particular, the value of the yen is highly likely to rise in the future.
◀ anchor ▶
The yen is also one of the investments.
◀ Young-Ik Kim/Professor, Graduate School of Economics, Sogang University ▶
That’s right.
◀ anchor ▶
It’s almost time, but I’m going to ask you one last question. Dollars are nothing to worry about then, for now.
◀ Young-Ik Kim/Professor, Graduate School of Economics, Sogang University ▶
Yes, it is.
◀ anchor ▶
What is the won-dollar exchange rate?
◀ Young-Ik Kim/Professor, Graduate School of Economics, Sogang University ▶
There is a story about the foreign exchange crisis. Our external part is much stronger now than it was back then. Of course, domestic demand is difficult due to consumer investment, household investment, and corporate debt, but for the most part, our external sector is much stronger than it was in 1997 and 2008.
◀ anchor ▶
Then, in terms of our exports, should we think that things will get better in the future and foreigners will come back, also in the stock market? Foreigners haven’t come back now, so it seems more off.
◀ Young-Ik Kim/Professor, Graduate School of Economics, Sogang University ▶
In the short term, in my view, our KOSPI share price is undervalued and the exchange rate is too high. Then, when foreigners buy Korean stocks, the most important thing in the short term is the exchange rate. There are foreigners who think 1,320 won is high like me. Recently, foreigners are buying some Samsung Electronics stocks.
◀ anchor ▶
Are you coming back?
◀ Young-Ik Kim/Professor, Graduate School of Economics, Sogang University ▶
Yes, I think I will live for a while. At the same time, I expect the stock price to rebound to a certain level and the exchange rate to fall.
◀ anchor ▶
Then it becomes dangerous again at the end of the year.
◀ Young-Ik Kim/Professor, Graduate School of Economics, Sogang University ▶
That’s right.
◀ anchor ▶
Good to hear. thank you
◀ Young-Ik Kim/Professor, Graduate School of Economics, Sogang University ▶
Thank you.
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