Bank of Korea Gov. Lee Ju-yeol on Friday expressed concerns about the stock market’s recent rally, warning retail investors that their debt-backed equity buying spree could lead to big losses.
The country’s benchmark Kospi has been on a bullish run since November, setting record highs last week when the market closed above the 3,000 mark on Jan. 7 for the first time in its 38-year history. Individual investors have continued to snap up shares amid record-low interest rates and abundant liquidity.
“It is difficult to call the recent Kospi surge as a bubble, but the speed of a stock rally is faster than in the past when we look at stock price trend and indicators,” he told reporters after the BOK’s monetary policy committee meeting.
Lee said a stock price adjustment could come in the wake of changes in monetary policies by major countries, a setback in supply of COVID-19 vaccines or an occurrence of unexpected geopolitical risks.
“Expansion of investment based on excessive leverage may cause losses that investors cannot handle if there is a price adjustment,” he said.
The central bank is closely monitoring a potential stock market correction but its impact would not be severe enough to threaten the resilience of the entire financial system, he added.
Earlier in the day, BOK board members unanimously voted to keep the base rate unchanged at a record low of 0.5 percent for the eighth month in a row.
Its decision to retain a steady interest rate, which was widely expected, came as the country seeks to prop up the economy hard-hit by another resurgence in COVID-19 cases from mid-December. The number of daily, confirmed cases have fallen below 600 this week, compared with over 1,000 cases in late December.
“The Korean economy has continued to recover modestly. Although private consumption has contracted due to the recent coronavirus resurgence, facilities investment has continued to recover and export growth has increased, led by the IT sector,” the BOK said.
The country’s exports have been showing a sign of recovery in the past three months, starting from October when it posted per-day export gains of 5.4 percent on-year.
But the path to economic recovery remains uncertain with sluggish consumer spending and an unprecedented job crunch amid toughened social distancing measures against the coronavirus.
“The extent of the domestic economic recovery is up to how fast consumption recovers, which depends on the development of the COVID-19 pandemic and the roll out of vaccines,” he said.
By Park Han-na (email@example.com