This study analyzes the changes in factors that have affected the amount of financial assets in Korea, estimates the possible future changes in demand for and supply of funds in Korea’s financial markets and predicts the future scale of the country’s stock market.
Funds are generated in financial markets with a growing national income pushing up saving rates and the savings then turning into new investments. Economies with a higher level of national income tend to have higher financial interrelation ratios (FIR). Korea’s FIR is lagging behind those of Japan, the U.S. and Taiwan, although it rose from 2.13 in 1970 to 3.77 in 1987. In Korea, the financial assets holdings of the financial sector have grown larger than that of the non-financial sectors, indicating a growth in indirect stock holdings by the non-financial sectors and the proportion of financial intermediation.
Korea’s non-financial sectors obtained the biggest portion of their funds from loans from financial institutions, and they also significantly increased their stock issues. As Korea’s trade balance turned positive, the amount of foreign loans into the country fell sharply. In the corporate sector, the growing internal cash reserves of businesses lowered their reliance on external funds. For individuals, although their savings increased with higher incomes, their total loan amount grew with more housing financing or consumer credit. The relative portion of external funds acquired by the government sharply dropped since the 1982 budget surplus.
The current value amount of financial assets in an economy represents savings previously accumulated. The value amount tends to grow faster than the economy’s real assets, and FIR tends to rise with the level of national income. FIR is related positively with real GNP and negatively with inflation rate. The financial balance ratios for every sector of Korea were positively related with real GNP and negatively with inflation rate, with the exception of the ratio for the government sector, which was negatively related with real GNP. All stocks, corporate bonds, national/public bonds and financial bonds were related positively with real GNP and negatively with inflation rate.
Past studies showed that the macro-economic determinants of a stock’s rate of return include inflation, rate of increase in money supply or rate of increase in real GNP. A regression analysis using Korea’s data found that the real GNP growth rate had the biggest impact on a stock’s rate of return. A regression analysis for a bond’s rate of return found inflation had a positive impact while the impact of real GNP growth was negative.
Korea’s FIR is predicted to rise to 5.0 in 1995 from 3.82 in 1988. Its continued increase is due to factors such as stockpurchases by the non-financial sectors, the corporate sector’s stock issues and liquidations of debts.
자본시장수급분석과 전망(Korea’s capital market)
Flow of funds and future prospects
|Series Title; No||정책연구시리즈|
|Subject Country||South Korea(Asia and Pacific)|
|Subject||Economy < Macroeconomics|
|Holding||한국개발연구원; KDI 국제정책대학원|