[SAFF 2020] Unprecedented Shock from COVID-19... The Decline of G2 and the Arrival of the 'G-Zero' Era

Discussion at the '2020 Seoul Asia Financial Forum' Hosted by Asia Economy

Post-Corona Global Financial Market Changes and Responses

The "2020 Seoul Asia Financial Forum (SAFF 2020)" hosted by Asia Economy was held on the 20th at the Western Chosun Hotel in Jung-gu, Seoul. At the panel discussion under the theme "Changes and Responses in the Global Financial Market Due to COVID-19," Choi Jae-young, Director of the International Finance Center, who served as the moderator, is speaking. This event, held under the theme "Post-COVID, Financial Market Stabilization Measures," was organized to deeply explore innovative strategies to overcome uncertainties in the era of the big blur in finance and capital markets. This year, to prevent the spread of COVID-19 and ensure the safety of speakers and participants, the event was conducted via online live streaming. Photo by Kim Hyun-min kimhyun81@

[Asia Economy Reporters Oh Hyung-gil, Kwon Hae-young, Ki Ha-young] "Many unprecedented events have occurred in the international financial markets during the three months of the COVID-19 pandemic. On February 21, three months ago, global stock prices fluctuated sharply, at one point dropping more than 30%. Although governments worldwide have implemented emergency measures, the global economy still shows a sideways trend." (Choi Jae-young, Director of the International Finance Center)

"COVID-19 is an unprecedented crisis that overturns the behavior of existing economic agents. Initially, it was believed that the situation would normalize once the external variable of COVID-19 was resolved. However, the real economy has deteriorated far more than expected. In the current situation where the real economy is hit by the virus, there are no effective measures other than short-term policies at hand. The COVID crisis is more difficult than any previous crisis." (Park Ui-taek, Head of Coverage Division, Deutsche Bank Seoul Branch)

The shock that the unforeseen 'COVID-19' crisis dealt to the global financial markets was beyond imagination. The U.S. Treasury market, considered a safe asset, became strained, and oil prices plunged into negative territory. With a surge in unemployment, this global economic crisis is showing a different face compared to previous crises.

Global financial experts diagnosed the changes in the global financial markets triggered by COVID-19 under the theme "Post-COVID Financial Market Stabilization Measures" at the "2020 Seoul Asia Financial Forum" hosted by Asia Economy on the 20th, emphasizing the need to prepare for the "New Normal of Uncertainty."

Jung Joong-ho, Director of the Hana Financial Research Institute at KEB Hana Bank, analyzed that the changes in the global financial markets caused by COVID-19 are progressing in three stages.

Director Jung explained, "The first stage was when the first COVID-19 patient appeared in Wuhan, China, on November 17 last year, and rumors spread, causing anxiety in local communities, which was regarded as a regional issue. In the second stage, after February, the World Health Organization (WHO) declared a 'COVID pandemic,' and as confirmed cases increased in the U.S., the Federal Reserve (Fed) held an emergency meeting and cut the benchmark interest rate, ushering in a zero-interest-rate era. Countries actively implemented lockdown policies."

He added, "Market turmoil and spasms began in early March. Credit spreads in the corporate bond market surged, volatility increased, and a situation arose where only the dollar was sought instead of safe assets like gold or copper. This phenomenon, appearing as we move into the third stage, is a situation that can predict the future rise or fall of the economy."

The '2020 Seoul Asia Financial Forum (SAFF 2020)' hosted by Asia Economy is being live-streamed online on the 20th at the Western Chosun Hotel in Jung-gu, Seoul. At the panel discussion held under the theme "Changes and Responses in the Global Financial Market Due to COVID-19," Choi Jae-young, Director of the International Finance Center, who served as the moderator, is speaking. This event, held under the theme "Post-COVID, Financial Market Stabilization Measures," was organized to thoroughly explore innovative strategies to overcome uncertainties in the era of the big blur in finance and capital markets. This year, to prevent the spread of COVID-19 and ensure the safety of speakers and participants, the event was conducted via online live streaming. Photo by Kim Hyun-min kimhyun81@

Choi Jae-young, Director of International Finance Center
"Global stock prices plunged for 3 months... Unprecedented events occurred"

Jung Joong-ho, Director of Hana Bank Research Institute
"Financial market changes in 3 stages... Future rise or fall unpredictable"

Park Ui-taek, Head of Deutsche Bank Division
"Government emergency support extinguished urgent fires but 2008 financial crisis could recur"

Shin Dong-jun, Head of KB Securities Research Center
"Emerging markets have lower currency trust than developed countries... Doubts about quantitative easing"

Ahn Yoo-hwa, Professor at Sungkyunkwan University
"Europe and U.S. economies weak, China's Q2 economic data expected to plunge"

Park Ui-taek, Head of Coverage Division at Deutsche Bank Seoul Branch, said, "The real economy's damage has just begun, and the impact on companies is much more severe. Emergency funding support has extinguished urgent fires, but if the real economy stagnates for a long time, it could lead to financial shocks affecting companies as well." Park even suggested the possibility of a financial crisis similar to 2008 occurring.

Shin Dong-jun, Head of KB Securities Research Center, predicted that the recession caused by COVID-19 would affect developed and emerging countries differently. Shin said, "Developed countries are expected to experience negative growth until the second quarter of next year, with the negative growth decreasing and somewhat improving from the latter half of the third quarter. Among emerging countries, China and South Korea started COVID-19 relatively earlier, but since their economies did not completely shut down, the first quarter will be the bottom, followed by recovery."

He continued, "The biggest concern is emerging countries excluding China and South Korea. They are implementing fiscal expansion and quantitative easing to overcome COVID-19, but given the currency trust in emerging markets, there are doubts about whether quantitative easing is feasible. Emerging markets will face more difficult situations," he warned.

Ahn Yoo-hwa, Professor at Sungkyunkwan University's Graduate School of China Studies, analyzed that China's macroeconomic data indicates an economic hard landing. Ahn said, "The Chinese government announced 2.3 million unemployed last month, but academia estimates as high as 70 million. It's not just about China doing well; since Europe's and the U.S.'s economies, China's top two export destinations, are very weak, the second-quarter economic data is expected to be very poor."

On this day, experts agreed that the government's role would grow through active fiscal policies to respond to COVID-19. Director Jung said, "Active fiscal support to sustain livelihoods and employment is a policy with a defensive nature for the economy and a natural duty of the state. Going forward, various forms of 'New Marshall Plan (economic reconstruction)' policies will be promoted, ushering in an era of 'big government.'"

Director Shin also said, "Looking at the investment ratio to GDP in U.S. investment data, intellectual property rights in new industries are increasing trend-wise even though the economy is shocked. The divergence between the economy and stock prices is likely to continue and will accelerate due to COVID-19."

Furthermore, due to conflicts between the U.S. and China after the COVID-19 crisis, there is a forecast that the era of the 'G2' (Group of Two) will give way to the era of 'G-Zero.'

Director Jung said, "With the U.S. lacking the will to sustain global leadership and China not yet capable of exercising global leadership, the absence of global leadership will continue. In such a situation, the financial market will structurally show vulnerabilities similar to those after the 2008 financial crisis."

He added, "With prolonged ultra-low interest rates, banks appear stable due to Basel III regulations, but pension funds, insurance companies, and hedge funds are accelerating their investment behavior toward risky assets to secure returns amid this crisis, which is a major concern."

At the '2020 Seoul Asia Financial Forum (SAFF 2020)' hosted by Asia Economy on the 20th at the Western Chosun Hotel in Jung-gu, Seoul, Eun Sung-soo, Chairman of the Financial Services Commission, delivered an encouraging message via video. The event, held under the theme "Post-Corona, Financial Market Stabilization Measures," aimed to deeply explore innovative strategies to overcome uncertainties in the era of the big blur in finance and capital markets. This year, to prevent the spread of COVID-19 and ensure the safety of speakers and participants, the event was conducted via online live streaming. Photo by Kim Hyun-min kimhyun81@