🚨 Asian Markets 'Panic Selling'

Today Korean Economic News | 2025.01.09

📌 "Sold 22 Trillion in the Last Quarter Alone" Asian Markets 'Panic Selling', What's the Reason?

💬 Reasons for the significant decline in Asian markets include mixed economic indicators, rising US 10-year Treasury yields, dollar strength, potential US tariff impositions, economic policy uncertainty, and geopolitical risks. Additionally, one factor is analyzed to be the relatively higher stock price increases in regions outside Asia compared to Asian markets last year. As a result, the market outlook appears gloomy.

1️⃣ Easy to Understand

A 'panic selling' phenomenon is occurring in Asian stock markets where investors are selling off stocks on a large scale. During the last quarter, funds amounting to a staggering 22 trillion won flowed out of Asian markets.

Let's understand this through an everyday example. It's similar to a situation where a fire alarm suddenly goes off in a large shopping mall, causing everyone to rush to the exits all at once. Investors are hurriedly selling their stocks to avoid bigger losses.

Why is this happening? There are several reasons, but the main causes are uncertainty in the US economy, rising interest rates, and dollar strength. Additionally, as stock markets in other regions like the US and Europe performed better than Asia last year, investors are moving their funds to markets with better returns.

In this situation, individual investors need to reconsider their investment strategies from a long-term perspective rather than being swept up in market fear. In particular, they should recognize that opportunities and risks can vary by country and industry within the Asian market.

2️⃣ Economic Terms

📕 Panic Selling

Panic selling refers to a phenomenon where investors massively sell off their assets due to fear.

• It is triggered by sharp market declines or negative news, and occurs due to emotional reactions rather than rational judgment.
• Such large-scale selling can cause a chain reaction that further plummets stock prices.

📕 Treasury Yield

Treasury yield refers to the yield on bonds issued by the government.

• In particular, the US 10-year Treasury yield is considered an important indicator in global financial markets.
• When this yield rises, the dollar value goes up, which can have a negative impact on emerging markets.

📕 Dollar Strength

Dollar strength refers to a phenomenon where the value of the US dollar rises against other currencies.

• When the dollar strengthens, the burden increases on emerging market companies with dollar-denominated debt.
• It also affects commodity prices, potentially worsening the profitability of export-dependent Asian countries.

📕 Geopolitical Risk

Geopolitical risk refers to the risk that political and military tensions between countries pose to the economy and financial markets.

• This includes trade disputes, territorial conflicts, and wars, which negatively affect investment sentiment and corporate activities.
• The Asian region is exposed to various geopolitical risks, such as US-China trade conflicts, Taiwan Strait issues, and Korean Peninsula situations.

3️⃣ Principles and Economic Outlook

💡 Changes in Global Fund Flows

• The recent phenomenon of large-scale funds flowing out of Asian markets indicates a significant change in global fund flows. This may be a signal of structural change rather than a simple market correction. In particular, the phenomenon of funds concentrating in the US market is becoming prominent, driven by US interest rate policies, economic growth rates, and the growth of new technology companies such as AI. The Asian market is showing relatively slower growth, and China's economic growth deceleration is also a factor accelerating this fund outflow. Investors are moving funds to markets with higher returns relative to risks, and this is likely to continue for the time being.

💡 Impact of US Economic Policy

• The economic policies of the Trump administration's second term, especially the possibility of tariff impositions, are adding significant uncertainty to Asian markets. If the US imposes high tariffs on Asian countries, including China, export companies in this region could be severely impacted. US interest rate policy is also an important variable. If the Federal Reserve lowers rates more slowly than expected or maintains them at a high level, continued dollar strength could put pressure on Asian emerging market currencies and asset values. In this situation, central banks and governments of Asian countries face the challenge of promoting market stabilization through a harmony of monetary and fiscal policies.

💡 Possibility of Differentiation by Country

• Even amid the overall decline in Asian markets, there's a possibility of differentiation by country and industry. For example, India, with its solid domestic market, may be relatively less vulnerable to external shocks, and South Korea and Taiwan, with developed advanced technology industries such as semiconductors and batteries, have recovery potential depending on global technology demand. China, on the other hand, faces complex problems such as a slumping real estate market, weak domestic demand, and trade conflicts with the US, which may slow its recovery. Japan may show relatively better performance due to the weak yen and improved corporate profitability. Investors need a selective approach that considers these differences by country and industry.

4️⃣ In Conclusion

The 'panic selling' phenomenon in Asian markets reflects structural changes in the global economic environment rather than a simple temporary adjustment. Various factors are working together to stimulate investor anxiety, including US interest rate policy, dollar strength, potential tariff impositions, and geopolitical risks.

In this situation, it's important for investors to maintain a long-term investment perspective rather than overreacting to short-term market volatility. Particularly within the Asian market, since opportunities and risks can vary by country and industry, a selective approach through careful analysis is necessary.

Policymakers should seek an appropriate combination of monetary and fiscal policies for market stabilization. In particular, central banks in Asian countries face the difficult task of finding a balance appropriate to their own economic situations while responding to policy changes from the US Federal Reserve.

In the long term, improving the fundamental structure and implementing structural reforms in Asian economies are necessary. Efforts to create an economic structure less vulnerable to external shocks through domestic market activation, strengthening industrial competitiveness, and technological innovation are important.

From an investor's perspective, the adjustment in Asian markets can be taken as an opportunity for long-term investment. In particular, it's a time to consider investments in companies with strong fundamentals and high future growth potential. However, as market volatility is likely to remain high for the time being, a gradual approach and risk management are essential.

Ultimately, the current situation in Asian markets is challenging, but it suggests a time that requires a wise investment strategy and long-term approach to find opportunities even in crisis. Wisdom is required to prepare for uncertainties through a balanced portfolio composition while monitoring changes in the global economic environment.