2024 was a perfect year for stock investors, especially those investing in the American stock market. The annual increase in the Nasdaq Composite and S&P 500 indices recorded around 30%. In contrast, the KOSPI and KOSDAQ indices ended the session down 9.9% and 21.7%, respectively, from the beginning of the year. Nowadays, nine out of ten individual investors are asking the same question: “Will the American stock market continue its upward march in 2025?” While optimism prevails, a creeping sense of pessimism is also emerging. We listened to both sides' opinions on predicting bull and bear markets.[Editor's Note]
Investors' strong belief in the American stock market ultimately stems from their confidence in the American economy. The U.S. is a major developed country with the slowest aging rate and is a reserve currency country that can easily implement expansionary fiscal policy. Additionally, it has abundant energy resources, attracting global talent. In such an environment, the U.S. capital market easily draws promising corporations from around the world. This is why the argument that "the alternative is U.S. stocks" is gaining persuasiveness.
Of course, there are factors of concern. Representational of these are the uncertainty regarding the policies coming with the second term of the Donald Trump administration, skepticism about the artificial intelligence (AI) industry, the exponentially increasing national liability, and deepening polarization. Can the U.S. economy overcome such concerns and continue to grow steadily this year? To examine the prerequisite conditions for the smooth sailing of the American stock market, I met with Professor Park Sun-young of Dongguk University's Department of Economics at a hotel in Seoul on Dec. 30.
Born in 1982, Professor Park graduated top of her class from Seoul National University’s Department of Economics and earned her master's and doctoral degrees in economics from Yale University. Bank of Korea Governor Lee Chang-yong was her advisor during her undergraduate years. Professor Park was appointed as a professor in the Department of Industrial and Systems Engineering at Korea Advanced Institute of Science and Technology (KAIST) at the age of 29, worked at the Capital Market Research Institute, and is currently conducting research at Dongguk University’s Department of Economics. Her main research areas are financial markets, international finance, capital markets, and pension funds.
Professor Park said, “Currently, all countries except the U.S. significantly fall short in terms of economic performance,” and added, “The multiple of America—which signifies its corporate value ratio—undoubtedly must be high as talent, corporations, and technology are converging in the U.S.” His analysis is that a high multiple creates a virtuous cycle that attracts excellent corporations and liquidity to the New York stock market.
However, Professor Park noted, “The Korean stock market has a high proportion of individual investors, and it is concerning that individuals directly determine stock selection and timing.” He suggests that such investment behavior increases anxiety and fatigue.
The following is a Q&A session with Professor Park.
─Will the U.S. economy be smooth sailing this year?
“Right now, the U.S. economy is unrealistic. With a population of 330 million, the GDP per capita exceeds $80,000. The U.S. accounts for 26% of the global economy by GDP, yet such a massive economy grew only 2.8% last year with an unemployment rate of 4.1%. From a purely indicator-based perspective, everything appears perfect. Moreover, the dollar, as a reserve currency, dominates global financial markets. The U.S. can freely implement expansionary fiscal policy whenever necessary by leveraging this strong currency.”
─It sounds like you believe the U.S. economy will thrive.
“The outlook is cautious. However, one thing is clear: the economic performance of other countries, excluding the U.S., significantly lags behind. According to the International Monetary Fund (IMF), the only country among the Group of 20 (G20) that has outstripped pre-pandemic expectations in terms of production and employment is the U.S. In 1990, the U.S. GDP accounted for two-fifths of the total GDP of the Group of Seven (G7), but now it accounts for half. The average wage in Mississippi, the poorest state in the U.S., is higher than the average wages in the U.K., Canada, and Germany.”
─There are mentions of risk factors such as the inception of the Trump administration’s second term, AI bubble theories, and national liability burdens.
“These are chronic diseases like diabetes, representing a medium- to long-term risk. No one is concerned about acute conditions like heart attacks. Additionally, there are factors that could offset the risks. For example, the U.S. is the world’s largest energy producer and military power, and it also has many of the world’s top universities, which attract global talent. This is the driving force that keeps the U.S. leading in nearly all fields, including basic sciences and innovative technologies. The U.S. capital market, which has grown based on this environment, can easily attract excellent corporations. With a fertility rate of 1.66, the U.S. has the slowest aging rate among developed countries.”
─It sounds like you are describing a good-looking second-generation chaebol character who is good-natured and also excels at sports.
“There’s a term used frequently in economics: self-reinforcing or self-fulfilling expectations. It refers to any expectation that leads to the behavior of economic agents and eventually becomes a reality. Currently, the place where self-fulfilling expectations are working best is in the U.S. economy and capital markets.”
─Could you explain in more detail?
“Thanks to the foundations mentioned earlier, talent, corporations, and technology are all flocking to the U.S. Naturally, American multiples must be high. Many corporations with excellent growth potential want to conduct their IPOs (Initial Public Offerings) on the New York stock market. The high revenues of these corporations entering the U.S. stock market create a virtuous cycle that attracts more investors to the U.S. If the U.S. stock market performs poorly this year, it is highly likely that other stock markets will perform even worse.”
─Does self-fulfilling expectation not operate in the Korean economy?
“It does operate, but it is the exact opposite of the U.S. In our country, there is a lack of stable jobs. The labor market is rigid, and the welfare system after retirement is weak. Due to an inadequate transition in industrial structure, it is difficult for most individuals to earn an income at the level of developed countries, except for a few large corporations or specialized jobs. Young people struggle to find jobs until their 30s and have to retire in their mid-50s, all while housing prices and education costs for children are exorbitantly high. Ultimately, the self-fulfilling expectations of young Koreans culminate in investments in high-risk assets for a "big win."
─As a result, do you think that the younger generation is increasing their overseas investment and investments in virtual assets?
“It’s only natural. From the perspective of the younger generation, there’s no reason to stay in the domestic stock market because their expectations for the future of the Korean economy are low. According to one study, the annual investment return in 20th-century America was 7%, compared to 4.9% for markets outside the U.S. Over a hundred years, those who invested in the U.S. became more than seven times wealthier than those who invested in other countries. The debate over the peak of the U.S. stock market seems meaningless. Other countries’ stock markets are struggling so much that there aren’t any alternatives.
─What is the biggest difference between the capital markets of Korea and the U.S.?
“Essentially, Koreans are smart and diligent. The same applies to individuals who participate in the capital market. The proportion of individual investors in the Korean stock market (based on transaction volume) reaches 64%. In contrast, the U.S. and Japan are around 30%, while Germany stands at about 15%. Those who invest in stocks really study hard. They study and react whenever lending or housing policies change. There is also a significant amount of concentration. When a particular theme rises, they become busy buying and selling stocks even while working.”
─It seems better to study hard than to invest without understanding.
“That is true, but if this happens daily, anxiety and fatigue are bound to accumulate. In the U.S., individuals do not directly decide when to invest or focus intensely on stock selection. There are some, but most live their daily lives and invest indirectly through retirement plans, famously known as '401K.' Retirement funds account for 40% of the U.S. stock market. The proportion of financial assets within household assets is over 70%. From the government’s perspective, managing corporate stock prices is equivalent to managing the public’s retirement, so they supervise the capital market thoroughly.”
─Are you suggesting that our country should also shift towards an indirect investment culture?
“I believe that direction is correct. Korea is also gradually expanding its retirement pension market along with aging. Although it is difficult at the moment, we must change our investment culture. A society where economic actors, who should be productive, cannot concentrate on their work and instead fluctuate between joy and sorrow over stock price changes cannot be deemed healthy. It’s too exhausting.”
─Many people doubt our capital market and corporations when it comes to trusting and delegating.
“The loss of investor trust is a consequence of corporations long functioning under a controlling shareholder system and regulators overlooking such a market. Authorities must boldly expel those companies that aim solely at listing and show no effort after being listed, and corporations must return profits to their shareholders and make all decisions from a shareholder capitalism perspective. Saying it out loud, it sounds like common sense, but it is unfortunate that it’s not common in Korea.”