On June 11 last year, President Lee Jae-myung visited the Korea Exchange and said, "We will make it possible for citizens to receive interim dividends and earn living expenses through stock investments." His idea was to redirect asset flows concentrated in real estate toward the stock market to create a virtuous economic cycle. For a politician who has long emphasized basic income and universal welfare, some evaluated that his remarks accurately captured the operating principle of financial capitalism.
A year later, the market has heated up beyond the president's expectations. The KOSPI has surged 168%, and phrases like "500,000-won Samsung Electronics" and "3 million-won SK hynix" have emerged. As the semiconductor rally pulled up the stock market, individual investors gripped by FOMO are plunging into margin trading. Returns on the National Pension Service and other pension funds have also jumped significantly. The KOSPI is no longer just economic news but daily-life news. Stock market talk is unavoidable on the morning subway commute and over office workers' lunch tables. Just as real estate prices once did, stock prices now shape people's expectations.
But something is odd. The stock market is this hot, yet street-level business activity shows no sign of recovery. Customer deposits at brokerages have exceeded 130 trillion won, and margin trading has reached 36 trillion won, with liquidity flooding into the stock market. But the overflowing money has not translated into consumption. The money circles within the stock market or flows back into real estate. The link between capital gains and consumption has proven weaker than expected.
According to the Bank of Korea's analysis, when stock prices rise by 10,000 won, only about 130 won translates into actual consumption. That is just 1.3% of capital gains. Compared with 3-4% in major economies such as the United States and Europe, it is less than half. This means that rising stock prices are not translating into a perceived improvement in the economy.
There is also news that department stores have posted record sales. But a closer look reveals a different story. Luxury consumption and rising numbers of foreign tourists have propped up sales. Foreign sales at Lotte Department Store's main branch jumped 103% from a year earlier, and Shinsegae Department Store's main branch rose 140%. On the other hand, consumption of home appliances is declining, and discount store sales are stagnant. The warmth of the asset market boom is not spreading to ordinary household consumption.
The reason is clear. Even when people come into money, they have no room to spend it. The average propensity to consume, which was around 75% before 2010, has now fallen to around 70%. Aging is a major factor. Generations approaching retirement think first of saving for their later years rather than spending, even as their assets grow. The expansion of long-term investment through pensions also prevents stock price gains from flowing directly into consumption. Another problem is that the fruits of the stock market rally are concentrated in specific classes and specific stocks. In a semiconductor-led rally, middle-income earners, who have a higher propensity to consume, are relatively left out. On top of that, with the added burden of interest rates, returns on financial assets are being absorbed into loan repayments rather than spending.
With every change of administration, the debate over trickle-down and trickle-up effects has repeated. Conservative governments argued that large corporations and the wealthy must thrive for the entire economy to thrive, while progressive governments insisted that consumption should be boosted through welfare and wage increases. The Lee Jae-myung administration also shows a policy stance closer to the trickle-up effect. But at least in the current stock market boom, such effects are hard to see. No matter how high the KOSPI climbs, the perceived economy in alleyway shops and traditional markets remains cold. Even as semiconductor company bonuses rise, they end up as a celebration for only a certain class.
The key to reviving consumption and domestic demand is not rising asset prices but stable employment. While the KOSPI heads toward record highs, restructuring continues in industries such as petrochemicals, displays, retail and pharmaceuticals. When jobs are insecure, few people will open their wallets even if they earn returns from stocks. People are more sensitive to wages and job prospects than to stock prices. The same goes for stabilizing the real estate market. If jeonse and home price instability continues, money earned in the stock market is likely to flow back into real estate. In Korean society, real estate remains the most powerful safe asset.
Money does not necessarily flow only along the path that is cleared for it. When the lid is lifted, it may pool in one place or flow in an entirely different direction. For the stock market boom to translate into a genuine wealth effect, rising share prices alone are not enough. Stable jobs, a stable real estate market and broad-based consumer capacity must come together to support it. Only then can "a rising KOSPI" go beyond being a festival of numbers and extend into the real economy.
