South Korea’s new government was quick off the blocks with an 11.2 trillion won ($10 billion) stimulus package, aimed at creating 86,000 jobs and reverse rising youth unemployment.
However, equity analysts are cool on how much impact the stimulus will have on markets.
‘This announcement is not a game changer for the market as there is no specific detail yet on how new jobs will be created or how it will potentially impact consumption patterns,’ Arthur Kwong, head of APAC equities at BNP Paribas Asset Management, told Citywire Asia.
President Moon Jae-in was elected in May, following the impeachment and resignation of his predecessor, Park Geun-hye. A liberal, and former human rights activist, Moon stood on a platform of reforming the country’s economy to address inequality, and tackling corruption.
His first budget, which must pass the opposition-majority legislature this month, proposes to pump 7 trillion won into welfare, with the remaining 4.2 trillion won going into creating 71,000 public sector jobs -- including firefighters, social workers and police officers – and 15,000 private sector jobs.
The government also hopes that another 24,000 jobs will be created indirectly as a result in the uptick in spending, which would be funded by tax revenue and public funds managed by state-owned companies.
Although Korea’s economy is still growing, household income has not kept pace, and unemployment has risen as export-focused industries, in particular shipbuilders, have suffered due to weak external demand. Youth unemployment now stands at 11.2% in the country.
Kwong said that he remains selective in the Korean stock market, and prefers IT companies who are market leaders in research and development, have defensive pricing power, and are integrated into global supply chains. He also continues to favour certain consumer names in the discretionary sectors.
Andrew Swan, head of Asian and global emerging market equities at BlackRock, has a broadly similar view.
‘The earnings growth in the country is very strong this year, and it is not so much driven by the domestic stocks,’ he told a press briefing on Monday. ‘It is more driven by the global cyclicals, including the IT companies within that market, and we have seen a strong corporate recovery on both volume and price.’