Following last year, projections indicate that this year the economic growth rates, prices, and interest rates between South Korea and the United States will show diverging trends. There is a need for measures as the outflow of funds from the domestic stock market may accelerate.
The Korea Capital Market Institute (Capital Institute) held a seminar on the theme '2025 Capital Market Outlook and Major Issues' on the 22nd and presented the above contents.
◇ U.S. economy expected to grow by 2.5% while South Korea's growth rate seen at 1.6%
Capital Institute predicted that the economic temperature gap between South Korea and the United States will remain significant this year. The U.S. is expected to record an economic growth rate above its potential (2.5%) driven by a stable employment market supporting private consumption and increased investments in artificial intelligence (AI) and energy sectors.
In contrast, our economic growth rate is expected to remain at 1.6%. This is due to a weakening domestic base, such as private consumption, and the possibility of fluctuating export conditions. Deputy Minister Jang Bo-seong noted, “The downward risk to the domestic economy is assessed to be large due to the trade policies of the U.S. Donald Trump administration,” adding, “The rising inflation rate in the U.S. could lead the Federal Reserve to tighten its policy or delay easing domestic currency policies due to a high exchange rate.”
Deputy Minister Jang predicted that from next year, the trade policies of the Trump administration will significantly impact our economy. He stated, “While this year the impact of U.S. trade policies on the domestic market is not expected to be large, it could lower the economic growth rate by 0.25 percentage points starting in 2026.”
◇“Listed companies need to actively pursue value-up”
If the macroeconomic situation worsens, it will undoubtedly put pressure on the domestic stock market. Capital Institute stated that while the earnings forecast for listed companies in 2025 is set higher than in 2024, it could be revised downward due to slowing growth rates and uncertainties both domestically and abroad.
When the domestic stock market slows down, investors will continue to flee to alternative assets, including U.S. stocks. Deputy Minister Kang So-hyun stated, “There is a trend of individual investors who poured into the domestic stock market during the COVID-19 pandemic, particularly among the younger generation, exiting,” and noted that “as some corporations have announced value-up plans, active participation from corporations is required to enhance corporate value.”
Capital Institute is focusing on key issues in the stock market this year, including ▲ improving the delisting system ▲ operating companies facilitating multilateral trades (alternative exchanges) ▲ legislative improvements for protecting shareholder interests ▲ resuming short-selling. In particular, it is assessed that if short-selling is permitted again with a computerized system as scheduled by the end of March, it will lead to qualitative improvements in the market and fulfill the requirements for inclusion in the Morgan Stanley Capital International (MSCI) developed markets index.
Conversely, the domestic bond market is projected to perform well. If the Monetary Policy Committee of the Bank of Korea reduces the base interest rate by 0.75 percentage points as anticipated, it will result in lower market interest rates (higher bond prices) and an expansion in bond issuance.
Deputy Minister Kang stated, “An additional rate cut is expected this year, creating a favorable bond issuance environment,” adding, “This will have a positive impact on the inclusion in the World Government Bond Index (WGBI) by the end of this year.”
However, the issuance scale of government bonds is expected to increase by 24.5% this year compared to last year, and if a supplementary budget is prepared, it could create a supply-demand burden.
◇securities and asset management 'stable'… volatile market is a variable
Capital Institute expects the profitability of the securities industry to improve this year. By institutional sector, it is anticipated that revenue from the brokerage segment will increase due to a rise in overseas stock investments, and demand in the asset management sector like exchange-traded funds (ETFs) and retirement pensions is expected to remain steady.
The investment banking (IB) sector is expected to have good results in initial public offerings (IPOs) and mergers and acquisitions (M&As), but concerns about the instability of real estate project financing (PF) have been flagged as risk factors. The potential decrease in revenue within self-trading due to the dips in issuance of equity-linked securities (ELS) and derivative-linked securities (DLS) combined with high exchange rates and interest rate uncertainties is also a possibility.
Deputy Minister Lee Seok-hun noted, “Market uncertainties due to interest rate uncertainties and high exchange rates are variables,” and emphasized, “It is necessary to enhance self-trading risk management based on scenario predictions.”
Capital Institute also projected that the asset management industry would show overall stability as the ETF market rapidly grows. However, it was noted that differences in performance are expected based on product types. Investment products related to overseas stocks or both domestic and foreign bonds are anticipated to perform well, while domestic stocks and domestic and foreign real estate investment products are predicted to underperform.
Deputy Minister Kwon Min-kyung forecasted that the size of public overseas investment funds centered on ETFs will continue to surge. He stated, “Overseas stock ETFs, as well as leveraged, inverse, and covered call funds are leading the market,” emphasizing, “This trend will continue unless the domestic stock market rebounds significantly.”