Investors looking for foreign stocks may be considering the KOSPI, the Korean stock market. However, many analysts are bearish on the KOSPI. Exports to China are slowing down. There is a fear that exports to the US will do the same. China and the US are Korea’s 2 biggest export markets.
Export markets are critical because domestic demand is weak. The governement finally admitted that economic growth may fall short of the government’s prediction of 5%. Analysts have been saying this for a while now.
Interest rates were expected to be cut in October, but they weren’t as rising oil prices might contribute to fuel inflation. Cutting interest rates would make it easier for people to borrow money. More money being spent would mean higher prices or inflation.
Of course, the finance minister wanted interest rates cut to fuel domestic demand, which could alleviate the problems caused by slowing export growth. Analaysts now say that a rate cut in November is inevitable.
Conclusion = weak domestic demand and slowing export growth spells trouble for the KOSPI. A rate cut will increase domestic demand and one is expected, but is not quite inevitable. Export growth will be dependent on the Chinese and US economies. Don’t forget that just because growth will be lower than 5%, doesn’t mean there’s no growth. 5% or a bit less is not bad for the World’s 11th biggest economy.