[2020 Gold Age] CEO Hong Chun-wook "Strong Deflation Era... Need to Broaden Interest with High-Yield Corporate Bonds"

Hong Chun-wook, CEO of EAR Research, Presents 'Post-Corona Era Investment Strategies'

[Asia Economy Reporter Minji Lee] “All countries inevitably have to go to 0% zero interest rates. In a strong deflationary era, you need to find products with high interest rate attractiveness to invest in.”

Hong Chun-wook, CEO of EAR Research, said this on the 9th at the ‘2020 Gold Age Forum’ hosted by Asia Economy at the Bankers Hall in Jung-gu, Seoul, regarding post-COVID-19 era investment strategies.

Economist Hong Chun-wook is giving a presentation on "Post-Corona Era Investment Strategies" at the 2020 Gold Age Forum held on the 9th at the Bankers Hall in Jung-gu, Seoul. Photo by Moon Ho-nam munonam@

Recently, the daily new confirmed cases in the United States have exceeded 60,000, making the second wave of the novel coronavirus infection (COVID-19) a reality. The U.S. lifted lockdown measures last month and resumed economic activities, but as COVID-19 resurges, concerns are rising in the financial markets about a possible repeat of a major crash. In response, CEO Hong said, “As people have become accustomed to the response methods to COVID-19, the number of deaths relative to confirmed cases is not rapidly increasing,” adding, “Since the risk of credit crunch has decreased due to corporate bond purchases, in the long term, the recovery will show a W-shaped pattern with the right shoulder higher.”

CEO Hong forecasted that the whole world will inevitably fall into a deflationary state (price decline due to economic recession) for the time being. Accordingly, he predicted that major central banks, including the Federal Reserve (Fed), will have no choice but to maintain zero interest rates for the time being. He expected that zero interest rates will continue for about 3 to 4 years in advanced countries like the U.S., and for about 1 to 2 years in emerging currency countries like Korea.

CEO Hong explained, “The Fed is engaging in quantitative easing by distributing money even at premiums to corporate bonds or bonds held by financial institutions, but banks are instead depositing this money back to the central bank, increasing excess reserves,” adding, “They are trying to cause inflation, but it should be understood that it will take more time for money to actually circulate in the market.” Regarding the timing of interest rate hikes, he forecasted it will be when the remaining inventory from economic shocks is depleted and banks’ excess reserves decrease, causing money to flow into corporate bonds.

CEO Hong emphasized that in this situation, attention should be paid to high-yield corporate bonds. This is based on the judgment that the attractiveness of these bonds increases as the economic situation worsens. He said, “Empirically, when economic conditions are poor, credit spreads (interest rates added according to credit rating) surge, but high-yield corporate bonds showed maximum corporate profits after the interest rates dropped following the surge,” explaining, “In the deflationary era, market interest will shift to corporate bonds.”

Finally, CEO Hong advised expanding interest in advanced country real estate. This is based on the experience that during periods of sharp interest rate declines, the real estate market showed a sharp rise with a time lag. He recommended, “Investing in advanced country real estate through REITs ETFs,” and explained, “Currently, mortgage rates are approaching their lowest due to the impact of COVID-19, but they are expected to show a rebound trend in the future.”