A banner commemorating the benchmark KOSPI index breaking the 7,000 mark is displayed outside the Korea Exchange building in Seoul, Wednedsay. Yonhap
Stock market gains in Korea lead to less consumer spending than in the United States and Europe, largely because local households tend to use investment returns to purchase homes rather than spend on goods and services, a central bank report showed Thursday.
According to a Bank of Korea (BOK) report on the wealth effect of stock market gains, only about 1.3 percent of capital gains from rising stock prices are spent on consumption in Korea, far below the 3 to 4 percent wealth effect typically seen in advanced Western economies.
Based on household panel data covering 2012 to 2024, the BOK estimated that a 10,000 won ($7) increase in stock value leads to just 130 won in additional household spending.
One reason for the weaker wealth effect is the relatively small role those equities play in household wealth compared with Western economies.
Stock assets amounted to 77 percent of disposable income in Korea last year, sharply lower than 256 percent in the U.S. and 184 percent in major European countries, the report said.
Another factor is retail investors' tendency to reinvest stock gains into real estate.
The BOK estimated that about 70 percent of stock profits earned by households without home ownership eventually flowed into property purchases, limiting additional consumer spending.
"Recent data showed that the share of stock sale proceeds in funding home purchases in Seoul has increased significantly," the report said.
Due to market volatility, Korean households also tend to view stock gains as temporary windfalls rather than permanent income, dampening the impact on consumption.
Source: Korea Times News
