Korea’s Cinematic Stagnation Staging
Korea shares continued to decline after brief foreign investor inflows on the North’s reported cyber-attack against Sony Pictures in the US to prevent release of a film comedy about the Great Leader and the Finance Minister’s 2015 economic downgrade with longer-term stagnation warnings. Washington threatened retaliation and China urged a halt to such hacking it is also said to sponsor as nuclear facilities in the South were also recently targeted. The won has tumbled to 1100/dollar in the wake of the yen’s record plunge under additional monetary expansion, with next year’s growth revised to 3 percent on 2 percent inflation and less than 5 percent export increase. To support the currency the central bank has occasionally intervened and relaxed capital inflow controls on derivatives. The benchmark rate has stayed flat on 1 percent November inflation aided by reduced oil import costs. Authorities are wary of further household borrowing with debt approaching $1 trillion, and fiscal stimulus in the latest budget has been relatively ineffective with poor consumer sentiment. The chaebol continue to come under legislative and activist pressure to raise dividends and corporate governance standards although the President has backtracked on her campaign breakup platform and big shareholders were recently stymied by Hyundai Motors $10 billion purchase of Seoul financial district real estate against the wishes of critics like Templeton Funds. Samsung with mixed earnings is facing global investor divestiture demands to boost value as original family owners show little sign of relinquishing control. The business culture of impunity was also tested as sentences were handed down for the ferry sinking claiming hundreds of student lives which families did not consider harsh. The anti-conglomerate thrust has lost momentum as cross-border auto and technology competition intensifies with Japan after Abenomics’ renewed election mandate. The Prime Minister’s ruling coalition shed just a few seats with the weak opposition despite negative Q3 growth and capital spending. The second sales tax rise has now been shelved even with a Moody’s sovereign demotion on the decision, and the 2 percent inflation goal delayed for the medium term. The “third arrow” structural reform elements of the program have leapt to the forefront with the convincing win as the free-trade TPP with the US may gain agricultural and industrial backing after previous negotiation impasse.
China was originally excluded but Washington has revisited the prospect for a bilateral investment treaty as the Republican-led Congress prepares to convene through the remainder of President Obama’s term. The PMI again dipped under 50 as 7 percent GDP growth has surfaced as the official 2015 target despite leaner housing and fixed investment indicators. Producer prices show deflation as the renimbi has slipped 2 percent against the dollar under the wider fluctuation band. Total social financing returned to the RMB 1 trillion monthly mark as the central bank injected liquidity and may further loosen reserve requirements. The Shanghai exchange was buoyed by new retail accounts shifting from shadow wealth products under fire and from bonds subject to tougher disclosure which have choked local government emissions.
