On the morning of the 8th, fine dust was thick and visibility was blurred in Seocho-gu, Seoul. Reporter Jeonghyo Kim [email protected]
For some investors, last year must have been a painful year. The KOSPI, which was 2988 at the beginning of the year, closed at 2236 at the end of the year, and the KOSDAQ index fell from 1037 to 679. When the stock market was struggling, the bond market, which had been relatively strong, also suffered losses. The three-year government bond yield, which was 1.8% at the beginning of the year, rose to near 3.8% at the end of the year. Due to the nature of the bond, if you hold it until maturity, you will not see a loss, but investors who had to sell it in the middle suffered a loss of 3 to 4% of their investment principal.
Large-scale losses also occurred in overseas stocks and cryptocurrency investments. In particular, stock prices of large American high-tech companies favored by Korean individuals fell 30-60%, far exceeding the decline in the index, and bitcoin prices fell more than 70% from their peak. Furthermore, housing in Korea, which has grown into a bubble with the appearance of the so-called ‘young’, is currently being traded at a price that has fallen by 20 to 30%. In other words, the asset value of almost all investors has decreased, except for a few who have chosen a sell strategy to the extent possible. The problem is that even in the new year, the investment environment is not easy. Historically, there have been many cases in which a large rise in asset prices occurred in the year following a large fall in asset prices. This is because market prices are greatly influenced not only by the underlying economic environment but also by investor sentiment, so the extent of decline tends to widen in the final moments of a decline, and when price declines intensify, policy authorities step in to boost them.
However, this time, other than the falling price, the factors supporting asset prices are hard to see. It is difficult to expect policy support as prices do not fall well, and it is difficult to judge that the price level has fallen as a result of an excessive decline, just because the bubble has burst. Key figures at the US Federal Reserve are pouring out remarks that the key stance should be maintained for a long period of time stronger than the market expects. In particular, the International Monetary Fund (IMF) recommended that Korea continue its stance of fiscal tightening and rate hike. It is said that stabilizing prices by reducing the growth rate is the top priority, and this contraction balance inevitably has a negative impact on the value of various assets. Of course, the large drop like last year will not be repeated. Stock valuation indicators have come down significantly from last year’s peak, maintaining a level that is not cheap but not expensive, and domestic housing prices are also falling to a level similar to that of the 2008 financial crisis. So how should individual investors respond? Reduce risky assets and increase safe-haven assets. In other words, it is desirable to reduce the proportion of stocks or real estate for investment purposes and increase the proportion of interest-bearing assets such as bonds. The portion of overseas stocks and cryptocurrencies should also be reduced. It should be remembered that even if you choose a good company, it is very difficult to make enough returns when the overall investment environment is not good. This is because bad news in the stock market sometimes has an adverse effect on any stock, and people usually forget their original intention to invest for the long term in these circumstances. This is why the price often goes down when I buy and the price goes up when I sell. Considering these points, investors’ new year’s topic should be safe investment, that is, ‘investment to keep’. CEO of SK Securities Future Strategy Division