Stock Market Boom vs Economic Reality: Why Experts Warn of Growing Disconnect

The Great Disconnect: Markets vs Reality

While stock markets have surged to record highs since the COVID-19 pandemic, the real economy continues to struggle with sluggish recovery. Economic experts are warning that the current stock market boom may not reflect actual economic conditions, raising concerns about sustainability and potential risks ahead.

Artificial Liquidity-Driven Growth

Since early 2020, when the COVID-19 pandemic began spreading globally, central banks dramatically cut interest rates while governments implemented massive fiscal stimulus programs. This unprecedented liquidity injection propelled stock markets to consecutive record highs, but the underlying economy has shown much slower recovery patterns. South Korea's stock market has recently broken through previous resistance levels, continuing its upward trajectory. However, domestic demand remains weak and small and medium enterprises (SMEs) face ongoing difficulties, highlighting the widening gap between financial markets and the real economy.

Bubble Concerns Amid Easy Money Policies

Experts argue that current stock market gains stem more from excessive liquidity rather than genuine economic improvement. The combination of central bank low-interest policies and expanded government spending has flooded markets with capital, creating what many consider artificial price inflation. Individual investor enthusiasm has particularly intensified, raising market overheating concerns. With real estate investment becoming increasingly difficult, capital has shifted toward equity markets, introducing more speculative characteristics to trading patterns.

Presidential Policy Shift Toward Equities

President Lee Jae-myung recently mentioned stocks as an alternative to real estate investment during a cabinet meeting, announcing plans to review tax reforms that would promote dividend distributions. This appears designed to redirect capital from real estate to equity markets, creating what the administration hopes will be a virtuous economic cycle. However, questions remain about whether policy-driven stock market support will genuinely improve the real economy. Critics worry that stock market gains may only benefit certain demographic segments while potentially exacerbating overall economic inequality.

Persistent Domestic Demand Weakness

While stock markets celebrate new highs, the real economy continues facing significant challenges. Domestic demand weakness has particularly affected small business owners and SMEs, further highlighting the disconnect between financial market performance and economic fundamentals. Although consumer prices have stabilized, real purchasing power has not recovered meaningfully. Employment markets also show persistent difficulties, especially among younger demographics, preventing stock market gains from spreading throughout the broader economy.

Expert Warnings and Alternative Approaches

Economic specialists warn that continued divergence between stock markets and real economic performance could trigger more severe economic shocks in the future. Artificially inflated asset prices will inevitably face correction pressures at some point. Alternative policy approaches focus on real economy improvement, including expanded SME support, domestic market revitalization, and job creation programs. Experts argue that fundamental economic structural improvements should take priority over financial market engineering.

Investment Caution Advised

Given that stock market euphoria may represent a temporary phenomenon, investors are advised to approach markets with greater caution. Stock market gains disconnected from economic fundamentals may not prove sustainable over the long term. The current situation echoes historical patterns where asset price bubbles eventually faced reality checks. Understanding this dynamic becomes crucial for both policymakers designing economic strategies and individual investors making portfolio decisions. As South Korea navigates post-pandemic recovery, balancing financial market stability with real economic growth remains a critical challenge requiring careful policy coordination and realistic expectations about market performance sustainability.

Original: https://trendy.storydot.kr/economy/stock-market-vs-real-economy