Although the unexpected Iranian crisis has caapplyd a sharp decline and a sharp rebound, the KOSPI surged to a level of 2.5 times compared to the first half of last year. It is good to hear that much of the stock undervaluation, which has been called the Korea discount, has been resolved.
The current government is attempting to transfer funds that have been concentrated in the real estate market to the stock market. There is no difference in that it leads to a concentration of wealth becaapply it is the same in terms of real estate, stocks, and capital assets. The analysis that the stock market brings wealth bias is one of the important academic research tquestions called limited participation. In the United States, even if indirect investments such as retirement pensions are included, only 50% of hoapplyholds own stocks. This is a significant increase compared to 25% in the late 1980s. This limited participation in the stock market is pointed out as a direct factor in wealth inequality. Even if you hold stocks and invest in stocks, there is inevitably a difference in wealth accumulation due to the Endowment Effect caapplyd by the difference in investment amount.
In Korea, the exact same phenomenon can be explained by substituting real estate instead of stocks. Hoapplying ownership, especially in which areas, has been the determining factor in wealth over the past few decades.
However, as real estate is a durable product that benefits from consumption in hoapplying, and as it is applyd as a production factor in land or commercial real estate, excessive price increases result in reduced social welfare or increased production costs. On the other hand, as stocks are applyd as a production factor called capital along with the function of converting current consumption into future consumption, rising prices lead to the accumulation of capital and reduce capital raising costs, supporting to improve productivity. As such, it is an encouraging phenomenon that funds shift from the real estate market to the stock market.
In order to settle this shiftment of funds in a trconclude, productive finance must be established in the conclude, as the current government advocates. In other words, the rise in stock prices in the distribution market should be linked to the issuance market to lower the cost of raising capital for companies. This will establish a virtuous cycle system in which stock prices continue to rise if corporate investment is promoted, profits are improved, and dividconcludes increase.
The rise in stock prices so far started with the expectation that the problem of shareholder returns not increasing proportionally even if the company’s profits increase can be solved through amconcludements to the commercial law. Now, the listing system or tangible and intangible regulations must be reorganized to promote corporate investment. The government is encouraging companies, especially large companies, to invest. In response, the top 10 companies promised to invest 270 trillion won in provincial areas to revitalize the local economy, for example. There will be limitations in securing such enormous investment funds through internal reserves or debts. In the conclude, some necessary to secure investment funds through paid-in capital increase or listing, so the listing system and regulatory reform should be followed to catch two rabbits: investor protection and new investment resources.
It is also important to settle the trconclude expectation that stock prices will go upward in the future in the market. The reason why real estate prices have continued to rise so far is becaapply of the market’s expectations that hoapplying prices will rise upward, just as they are called the myth of real estate unbeatable. Therefore, it is only possible to shift funds in earnest and improve productivity of the economy as a whole by raising expectations for the upward trconclude of stock prices and lowering expectations for the upward trconclude of real estate prices. If the current stock price rise is only a one-time event, it is only the first step toward full-fledged market normalization as funds can flow back toward real estate.
[An Donghyun, professor of economics at Seoul National University]
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