Real Estate, Stock, Currency Strengthening

By Kim Tae-gyu Staff ReporterDespite the anemic economic growth, property and stock valuations, as well as the domestic currency are strengthening again on the back of ample liquidity. However, experts warn that the much-hyped economic recovery may still be far away. According to Kookmin Bank, house prices rose 0.1 percent in April to put an end to a six-month downward spiral that stretches back to last October. In particular, southern Seoul areas designated as speculation zones led the upturn. The benchmark KOSPI finished at seven-month high of 1,397.92 Monday. At 507.01, the junior Kosdaq has already returned to levels reached before the collapse of Lehman Brothers last September.The local currency, which had nose-dived to the 1,600 level per dollar, has been hovering around the 1,280 range as of last week, with more room for strengthening against the greenback.But prices for homes, stocks and the won-dollar rate have not fully recovered to the level that prevailed before last September. Idle money is flowing back into property and stock markets as investors see little merit in parking their money in unattractive deposit accounts with rates at a record low, a Seoul analyst said.He and other experts warn against any hasty optimism since expansionary monetary policies and lavish government spending is temporarily buttressing the upturn. Even Strategy and Finance Minister Yoon Jeung-hyun has said it is premature to conclude that the economy is in a recovery stage.The IMF said in a report that Korea will be hit hard by creeping inflation from next year, possibly indicating the dawning of a high-inflation-low-growth stagflation era for the Korean economy``When the effect of stimulus packages or interest rate cuts run out later this year worldwide, Korea's exports might be hit hard,'' Lim Ji-won, chief economist at JP Morgan Korea, told Yonhap. ``Then, I see a likelihood that the economy will lose momentum during the period from the third and fourth quarters throughout the first half of 2010,'' Lim said. Exports account for more than half of the national income. Citigroup researcher Oh Suk-tae said snowballing household liabilities are feared to cast a chill on the economy, thus causing a double dip ― or another recession after a short-lived recovery. ``With timely policies, the Korean government successfully kept the time bomb of a foreign currency shortage from exploding last year,'' Oh said.``But the bomb has not gone anywhere. It lurks deep inside our economy in the form of prohibitively high household debts. Unless the debt problem is eased, the economy cannot get back on track,'' he said.According to the Bank of Korea, the country's households were indebted to financial institutions to the tune of 802 trillion won last December. The liabilities amounted to 78.3 percent of the nation's 2008 gross domestic products (GDP), which is comparable to 96.9 percent in the United States. Another headache is the H1N1 influenza A, the pandemic disease that has spread internationally after the outbreak started last month in Mexico. ``On top of positive signs, we are facing negative news like the H1N1 influenza A, which is feared to mess things up. We are keeping tabs on what will happen,'' Vice Strategy and Finance Minister Lee Dong-gul said