[THE VIEW]Short-Term Uncertainty as a Future Growth Driver

Short-Term Losses from Martial Law Unavoidable
Koreans’ Experience Overcoming National Crises
Will Lead to Long-Term Gains

South Korea faced an unprecedented challenge with President Yoon Suk-yeol's declaration of martial law and the impeachment crisis. The absence of political and policy leadership, especially the lack of proactive measures related to the launch of the second term of the Donald Trump U.S. administration, amplified uncertainty. Reflecting this uncertainty and anticipated losses, the stock market entered a downturn.

Two key variables in the currently accepted stock valuation models are future cash flows and discount rates. Cash flows relate to a company's profits, while discount rates are associated with interest rates, opportunity costs, and uncertainty. If a company's profits increase beyond expectations, stock prices naturally rise. Therefore, South Korea's current situation is expected to cause short-term losses, which is negative for valuation. Furthermore, increased uncertainty raises discount rates, negatively impacting stock prices.

So, is this event purely negative? While short-term losses are inevitable, it could be positive in the long run. If the policies initially underway were undesirable and detrimental to the economy, early correction might be better. Although this crisis has caused temporary gaps and difficulties, paradoxically, positive changes could follow. If future policy stability is added, long-term uncertainty could also decrease. In conclusion, although this crisis has caused short-term losses and uncertainty, expectations for long-term benefits and increased stability have not disappeared.

Such changes are often observed in corporate economic activities. Companies may choose stable options to minimize losses during crises, but many also endure losses amid uncertainty and succeed through better investments. The same applies to individuals. Instead of remaining unhappy in unsatisfactory or unpromising jobs, it is common to pause work temporarily to prepare for a better future through self-development or rest. To use an analogy, this is like undergoing surgery to remove a tumor. Currently, treatment is ongoing in the operating room, and family and friends anxiously await the results.

In conclusion, although the situation is extremely unfortunate and precarious, from an economic perspective, this crisis could serve as a catalyst for South Korea's developmental potential, and efforts should be made to ensure this outcome. The basis for this optimistic view lies in the continued existence of desirable systems and regulations, as well as the proactive actions of citizens. South Korea has previously overcome national-level crises. This resilience has built today's South Korea and its strong economic power. It appears that citizens have made decisions to restore the nation despite accepting uncertainty.

In particular, in the stock market, the proactive attitude of active shareholders has great potential to improve corporate health. Shareholders' actions can enhance the rationality of board composition or activate appropriate monitoring functions, creating a virtuous cycle that leads to sound decision-making. This is the background for paradoxically envisioning a brighter future through the reality of South Korea facing an unprecedented crisis and the movements of its sovereign people overcoming it.

Park Sung-kyu, Professor at Willamette University, USA