[Opinion] Korean Stocks, Let's Focus on the Davos Forum Country Competitiveness Rankings

Seojun Sik, Professor of Economics, Soongsil University

Last January, the KOSPI index surpassed 3,000 points for the first time in history. Although it has fluctuated since then, it still maintains a level close to its peak. Thanks to the Donghak Ant Movement, the Korean stock market is showing signs of gradually escaping the chronic "Korea Discount" phenomenon. Last year, except for the Nasdaq, where Apple, Amazon, and Tesla hold a significant market share, the KOSPI's rate of increase was among the highest in global stock markets.

Market outlooks are uncertain. Concerns about inflation and economic downturns, record-high price burdens, and ensuing bubble debates fuel anxiety. Interpretations of economic indicators flood the media and YouTube. Investors, who need to maintain a judgment free from political bias, are struggling. The most important investment indicator, Gross Domestic Product (GDP), has little correlation with the stock market and thus offers limited help for actual investing. Since the global financial crisis, the U.S. GDP growth rate has remained unusually low, failing to explain the record-high U.S. stock indices updated annually.

The author has long advocated buying Korean stocks, which are cheaper than those of any other country, for long-term investment. The Korea Discount phenomenon is expected to continue easing, and the Korean stock market is anticipated to be an attractive means for wealth growth. To support this forecast, it is recommended to monitor the annual rankings of national competitiveness published by the World Economic Forum (Davos Forum).

The national competitiveness ranking measures "a country's ability to create a business-friendly environment that drives national economic growth and improves citizens' quality of life." For sound investment, it is better to observe the national competitiveness ranking rather than GDP, which suffers from statistical illusions. Since it measures the competitiveness of the business environment, it inevitably has a strong relative correlation with stock indices of other countries. However, except for some foreign investors, it is surprising that few investors pay attention to this indicator.

Let’s look at past cases. For investment, it is important to closely examine the directional trend of the rankings. In October 2007, when Korea’s national competitiveness reached an all-time high of 11th place, the KOSPI index broke through the 2,000 mark for the first time, significantly narrowing the stock price gap with developed countries. However, from 2008 to 2016, national competitiveness sharply dropped to 26th place. During this period, the KOSPI index suffered relative underperformance, and the Korea Discount phenomenon deepened.

Observing key detailed items can also aid investment. For example, the notably low score for the financial system in Korea’s national competitiveness composite score is closely related to the significant undervaluation of Korean financial stocks today.

Since 2017, Korea’s national competitiveness ranking has turned upward, reaching 13th place in 2019. This provided the basis for confidently shouting "Buy Korea" during the stock market crash in spring 2020. Although updates to the rankings have been delayed due to the COVID-19 pandemic since last year, if Korea’s ranking rises in future announcements, investors can invest in Korean stocks with even greater confidence.

Seo Junsik, Professor of Economics, Soongsil University (Author of 'Investor’s Humanities Library' and 'Rewriting the Stock Investment Textbook')

This content was produced with the assistance of AI translation services.