[Start Economy] Stock Exchange, Two Days of Strong After Martial Law...Anxiety is "Left".

■ Host: anchor Lee Jung-seop, anchor Cho Ye-jin
■ Starring: Lee Jung-hwan, professor of economics and finance at Hanyang University

* The text below may differ from the actual broadcast content, so please check the broadcast for more accurate information. Please specify [YTN News START] when quoting.

[Anchor]
We deliver the latest economic news quickly and kindly. Start Economy, today we will be with Lee Jung-hwan, a professor at Hanyang University's School of Economics and Finance. Welcome, professor. Let's talk about our stock market first. It fell a lot after the martial law, but it closed higher. First of all, it seems that the plunge has subsided.

[Lee Jung-hwan]
As impeachment was not voted on, the stock market lost so much that it was called Black Monday on Monday. The KOSPI fell about 3% and the KOSDAQ fell more than 5%, which led to a huge plunge, and Tuesday and Wednesday's rebound led to a bit of a rise in Tuesday and yesterday's KOSPI rose about 1%, forming such expectations that the stock market is stabilizing. The shock came out very big, and it can be understood that it is a trend of recovering smoothly.

[Anchor]
How long will this all-soothing phase last, or will there be any changes in the future?

[Lee Jung-hwan]
But in fact, it is said that the uncertainty in the market is very high. Since there is political uncertainty and the uncertainty about the Trump administration is based on it, I said that there is a lot of uncertainty in the past, but I think political uncertainty is the result of increasing market uncertainty. You can understand that repeating this surge proves that uncertainty has grown in a way. In the end, I don't think there are many guarantees that it will be maintained tomorrow just because it went up today, and I think it's a pattern that can react very rapidly to small news. Now, fortunately, China is doing things like monetary policy, and our exports will be strong. There are good news such as the expectation that it will help increase the economic growth rate, but the uncertainty about the U.S. trade policy is so high that I mentioned earlier. And since it is still unclear whether Korean politics will be impeached or not and when these processes will occur or not, investor sentiment will change a lot depending on each event, especially individuals who are sensitive to changes in investor sentiment. The rise in stock prices yesterday is also a common low-priced purchase that institutions bought a lot in the case of KOSPI. From the perspective of institutions, I think it's too much loss and I'm coming in because I can make profits based on this opportunity, but KOSDAQ is a different story. However, we have to wait and see because there is a possibility that these situations may plunge when individuals' commitment and so-called investment psychology collapse. Uncertainty can be seen as an ignorant big situation as uncertainty in the U.S. and uncertainty in Korea overlap.

[Anchor]
Foreigners continue to sell both KOSPI and KOSDAQ. We have to watch this part, too. Anyway, the steam seems to have calmed down, but there seems to be a constant anxiety in the foreign exchange market.

[Lee Jung-hwan]
The foreign exchange market is now around 1430 won. In fact, it went up to 1445 won, and martial law took place. But it's 1430 won, the level that closed yesterday is very high. When the U.S. announced that it would cut the benchmark interest rate, it fell to the 1320 won range. But since then, it hasn't been long, but it's gone up more than 100 won in two or three months, so you can understand that it went up very quickly. Uncertainty is also playing a big role. Volatility is a highly volatile market, especially in the case of foreign exchange or stock markets, depending on supply and demand. And because Korea's political risk greatly affects Korea's demand for the won and the demand for the dollar, it often affects the demand for safe assets, so the foreign exchange market is particularly sensitive to political risk. I think I can tell you that these are situations that are putting an economic burden on Korea as it continues to exceed 1430 won. After stabilizing for a long time, it rose to 1,300 won immediately after Trump's election, and then to the 1330 won range due to political uncertainty as it went back and forth to 1,390 won, but I can tell you that it is unlikely to stabilize easily for a while. That's because the foreign exchange market is particularly sensitive to things like supply and demand, and it's because of the characteristics of responding to political risks.

[Anchor]
Before the martial law incident, the foreign exchange authorities recognized that over 1,400 won was an emergency at that time, but now it can be pushed back to 1420, 1430, and 50 won. Is there a possibility that the resistance line will be broken?

[Lee Jung-hwan]
The exchange rate is deeply related to the demand for a particular currency. There are certainly trends in Korea's economic situation, and there are opinions that exports will shrink if the U.S. raises tariffs or something when the Trump administration comes in. What happens when exports shrink is that the supply and demand of dollars is not smooth. As a result, the exchange rate tends to rise and the uncertainty increases, but in fact, the exchange rate trend does not seem impossible in a way because it is in response to demand for fundamentals and uncertainty. I think a lot of people are evaluating it. Even if you go down, it's in the early 1,300 won range. At that time, many people seem to speculate that when the U.S. cut interest rates and asked to see when it cut interest rates at a time when it made a big cut, it would be almost below that. There were a lot of talks about 1,100 won and 1,200 won in the past, but look down at 1,300 won and go up to 1450 won. In the short term, many people predict that it will move that much. There is also a reason for the uncertainty I mentioned earlier. Changes in U.S. trade policies and exchange rate policies clearly reflect the impact of Korea and supply and demand due to sluggish exports. In the end, the level is bound to be determined by the supply and demand mentioned earlier, so I can tell you that these fundamental factors have changed a little.

[Anchor]
As our economy is uncertain and unstable, the government has no choice but to be busy for now, but Deputy Prime Minister Choi Sang-mok seems to be strengthening communication with foreign countries.

[Lee Jung-hwan]
There was once an impeachment in 2017, and even then, the Ministry of Economy and Finance managed it a lot that there was no problem with the health of Korea because it was an IR event. I keep doing conference calls and consulting with foreign investors. In fact, companies ask for these things. The government should talk about the stability of these systems to businesses. The Ministry of Economy and Finance has no choice but to play this role because it continues to make demands to stabilize them while disclosing them to foreign investors, so to speak, large foreign investors. Of course, what companies say is important, but at the corporate level, it is much more reliable for the state to say this, so I know that the Korean Chamber of Commerce and Industry continues to demand it from the Ministry of Economy and Finance. What that means is that the martial law situation has come and the martial law has been resolved, and the signals that these things are unlikely to happen again and that there will be no major financial problems are clearly stated, and the Ministry of Economy and Finance wants the government to guarantee them, and accordingly, there are many conference calls these days that have no choice but to carry out them. In fact, when I go to Hong Kong in 2017, I think I'll actually do that again because I've made a lot of efforts to issue bonds such as Korean government bonds while doing IR events and traveling around the world. In particular, bonds issued in January are very important. Foreign exchange bonds issued in January are important factors that determine interest rates in a year, so in a way, they will make a lot of effort in December. I think it can be predicted that the Ministry of Economy and Finance will play a lot of roles in clarifying that there is no problem with Korea and there is no problem with external credit, and that investors should know this and that there will be no big problem by making this data.

[Anchor]
Deputy Prime Minister Choi Sang-mok's shoulders are heavier than ever and the situation is more severe. However, just before the martial law crisis, a Cabinet meeting was held, and he said that he strongly opposed martial law.

[Lee Jung-hwan]
It's a bit of a signal. In my opinion, the reason why we have to reveal this now is that in a way, Deputy Prime Minister Choi Sang-mok will lead the political situation stably. So you can suspect it abroad, right? In a foreign country, if an economic head coach has judicial risks, he may fall into the doubt of how he can believe his words, so I have a little personal opinion that they evolved quickly. If the economic head coach takes the lead in making these reports and changes them in a short period of time, it loses credibility, especially if they are exposed to judicial risks, so you can understand that it is a means to stabilize uncertainty in a few days, and the economic team led by Deputy Prime Minister Choi Sang-mok sent a message that the economic team is strong. And the message itself can be understood as a signal to stability because it continues to send a message that the current economy is stable based on these things. Now that it has emerged, and the reason why we are doing this now is that our economic team is working tremendously to reduce uncertainty, and we are trying very hard to build trust in foreign investors and foreign companies, and I personally understand that the head of the economic team is stable.

[Anchor]
But there is also a smoothing operation that I mentioned as a measure to stabilize exchange rate instability, what is this about?

[Lee Jung-hwan]
The ways in which exchange rates intervene in the foreign exchange market are direct intervention, oral intervention, and fine adjustment, so you can think of it as supplying dollar liquidity when the dollar rises little by little, and the Bank of Korea or the Ministry of Economy and Finance does this operation little by little. Because the exchange rate is basically determined by supply and demand, it is right not to apply it in principle, but in fact, when the exchange rate increases in volatility, speculators stick to it. When speculators stick to it, there are these effects of increasing volatility in the exchange rate due to speculative forces, so there are times when we have to fine-tune this and see an active signal that the exchange rate will not rise to some extent at some point. In particular, in Korea, uncertainty has grown, but the fundamentals themselves have not changed much, so it can be seen as an opinion that the government will slightly reduce exchange rate volatility, which is often the role of the central bank or the Ministry of Economy and Finance.

[Anchor]
I'll also talk about the industry. First of all, Korean Air has completed the process of acquiring Asiana Airlines. So it will be officially incorporated into a subsidiary from today, right?

[Lee Jung-hwan]
is correct. It took a long time. As far as I know, it will take a long time to close and turn into an integrated Korean Air. Eventually, Asiana Airlines' existing ones will disappear, and the two combined airlines will be transformed into the 11th largest airline in the world. In fact, what consumers are curious about is about mileage, but when there was a mileage evaluation, they tended to rate Korean Air a little higher than Asiana. The ratio itself will be the most problematic because there are opinions that the mileage of Korean Air is a little higher when looking at such things as seat promotion. This is because Asiana mileage accumulated have points, and Korean Air mileage accumulated have benefits in the end, and the combined benefits of airlines are combined. From a consumer's point of view, it is important to combine these points. However, even when comparing these things, Korean Air is highly evaluated, so we predict that it will try to end it without much damage by assuming a proper ratio.

[Anchor]
This has made it a super-large airline. Some people are worried that if this happens, the route will increase or the price of tickets will increase.

[Lee Jung-hwan]
Two companies were competing. In fact, there were two large airlines in Korea. We were competing, but if we reduce it to one, we can say it's an exclusive situation. In a monopoly situation, the first thing the economy teaches is that it will raise prices. It's the opinion that they're going to raise the price, so you can think of it as being very sensitive to these things. In fact, if the price rises, it will inevitably be caught by some kind of antitrust law, so I think I can tell you that it will operate very stably. In particular, LCC, that is, low-cost airlines, are said to license mid- to long-term routes and far-off routes. In the end, if there is only one Korean Air, there will be more pricing power for Korean Air, and consumers will suffer damage. There are talks that they will actively grant licenses to these LCCs and compete between travel routes. There is a possibility that the route itself used by consumers will increase. There is a possibility that it will increase as it becomes a big airline. There are licensing rights that the government has while redistributing Korean Air routes to LCC, and it is said that it will maintain a competitive relationship by redistributing these and that it will continue to monitor excessive increases in prices, and Korean Air itself also expresses opinions that it will not raise fares excessively above certain prices, so it can be understood that the effect of such monopolies will not be seen in a short period of time. In the end, the combination of the two large companies means that a huge monopoly will be formed in terms of a huge market share, and monopoly can eventually lead to a big framework of companies exercising their prices. And if Korean Air raises prices sharply now, negative perceptions of mergers and acquisitions will increase. And it is true that there are many opinions that Korean Air itself is unlikely to take such a risk because its governance structure is originally a controversial company.

[Anchor]
I don't want the market change to lead to disadvantages for consumers. Let's talk about the American stock market, too. The Nasdaq Composite Index surpassed the 20,000 mark for the first time on the New York Stock Exchange when it continues to rise like hot cakes?

[Lee Jung-hwan]
With the announcement of the price index today, the Nasdaq index has risen a lot, and it hasn't been long since I said that the Nasdaq index will go up from 17,000 to 18,000, but it's almost 1.8% today. I think there can be a number of factors. The first important thing was that I was worried about the consumer price index. If the consumer price index rises, the rate of interest rate cuts will slow down. If the rate of interest rate cuts decreases, technology stocks will inevitably be burdened. You have to invest a lot, but as procurement costs and bond procurement costs go up, the burden of Tesla and Amazon, which are rising a lot, has eased this burden. In other words, the consumer price index rose 2.7%, which is actually consistent with forecasts and what it means is that expectations of lowering interest rates are accurately formed in the U.S. December FOMC. I think it's 98%. The benefits have clearly gone for tech stocks because they think they will lower interest rates unconditionally. However, the Dow Jones fell slightly and pushed back too much. And some concerns about recession. And it's still said that consumer prices are going up a lot. When housing costs and such things are stabilized, consumption can expand further, but the service price index is set by the U.S. overall price index, but the consumer price index is not set, which has a negative impact on Dow Jones. It's a negative impact because domestic demand is important and consumption is important. In the case of technology stocks, there is a lot of reaction to the consumer price index, but the rise in consumer price index and others had a negative impact on the domestic demand-oriented Dow Jones index. However, with this coming out now, expectations for a rate cut are almost certain.

[Anchor]
I see. Let's stop here. Today, I was with Lee Jung-hwan, a professor at Hanyang University's School of Economics and Finance. Thank you very much.