South Korea's stock market boom has not done much to lift the mood of the nation's consumers. In the past year, the Kospi index has risen 59 percent in dollar terms, the best performer among Asian benchmarks.
India's Sensex has risen 49 percent, but while the Mumbai bourse's surge is reflected in, even powered by, strong demand for cars, cellphones and air travel, Koreans are too worried about jobs and the state of the economy to feel confident about spending.
Korean consumers are among the most pessimistic, while Indians rank among the most optimistic, according to research company AC Nielsen's twice-a-year survey, released this week.
Korean shoppers are subdued, analysts say, because they have struggled to pay the overdue debt after a credit card bubble burst in 2003. While that's a valid reason for the glumness, it may be wrong to infer from the recent pick-up in credit card spending that consumer sentiment is on the mend.
Credit card bills in December rose 22 percent from a year earlier to 19 trillion won (R120 billion), the highest monthly figure since January 2003, according to Yonhap News. That Koreans are once again flashing their cards doesn't necessarily mean that the pall of gloom is lifting.
In fact, it could be a signal of slower spending this year.
"Weak disposable income growth causes households to borrow from the future to support current consumption," UBS economist Duncan Wooldridge said in a January 20 note to clients. Korean households' net financial asset position was worsening as a result of rising liabilities, "and this normally leads to slower consumption in the future".
South Korea's real consumption growth exceeded the pace at which real disposable incomes grew in 2005.
According to Wooldridge, this had happened in six other years in the past 20, with household expenditure slowing the following year. The only exception was 2002, when the credit card bubble was growing, allowing Koreans to borrow some more from the future.
The Seoul government expects the consumption growth rate to increase this year to 4.5 percent, from 3 percent in 2005. Wooldridge forecasts spending growth to slow to 2.5 percent.
There's little evidence of a sustained recovery. The official consumer confidence index had a lower reading in December last year than in March, even as the economy grew 5.2 percent in the fourth quarter, almost double the first-quarter growth rate.
The stock market was valued at R4 trillion in December, 48 percent higher than in March. Is it possible that Kospi stock prices have stopped being a good barometer of consumer sentiment? Some analysts think so.
"It would be irrational to interpret the stock rise as a sign of economic recovery," said economist Choi Ho-Sang of the Samsung Economic Research Institute. "Unlike the past bull markets, corporate investment remains stagnant despite strong exports; consumer sentiment doesn't seem to have been triggered by the bull run either."
The rally is not without substance; earnings growth is strong. Samsung Electronics, the world's biggest maker of liquid-crystal displays and memory chips, last month announced its first quarterly profit gain in five and predicted higher earnings in 2006. Hynix Semiconductor, the second-largest maker of memory chips, last week reported that fourth-quarter profit had quadrupled from a year earlier.
Companies such as Samsung have reached that level of technological and marketing sophistication where investors are rooting for them to close their valuation gap with Japanese competitors, such as Sony, by using their spare cash to buy back their own shares.
Samsung's price-earnings ratio of 11 lags way behind Sony's 31.
Large listed Korean companies, however, aren't the most important for job creation: about 85 out of 100 workers are employed by small and mid-sized companies, which mostly offer casual positions to circumvent the country's stringent labour laws.
The hourly wage of a casual worker at a small firm is 57 percent lower than a permanent employee's pay at a large Korean company, according to a recent survey by the Korea Labour Institute.
So the biggest obstacles to wage and consumption growth are South Korea's smaller firms, which are characterised by high debt and low profitability. A sustainable pick-up in spending will require an overhaul of these firms.
The Kospi may continue to sizzle in 2006, though investors who are betting that rising asset prices will make Korean consumers spend more might be disappointed. - Bloomberg