Mirae Asset Global Investments has indicated that the substantial wealth generated by South Korean chip manufacturers will stimulate spending and inflation, prompting the Bank of Korea to raise interest rates at least three times over the next year. In a Tuesday interview, Choi Jinyoung, the firm's fixed-income chief and managing director, stated that employee bonuses at chip firms, elevated chip prices, and a buoyant stock market are likely to sustain price pressures. This could lead the central bank to increase its policy rate from the current 2.5% to as high as 3.5% by the second half of 2027. He added that South Korea's 10-year government bond yield is expected to surpass 4% within the next two months, a level not seen since 2023. Samsung Electronics Co. recently reported an eight-fold surge in profit, significantly exceeding expectations, highlighting robust demand for AI memory chips despite Middle East tensions. SK Hynix Inc. also saw its quarterly profit increase fivefold. Choi remarked, "Where else will Samsung and SK Hynix employees spend these bonuses?" Mirae Asset, with assets under management of approximately 339 trillion won ($228.4 billion), is one of South Korea's largest asset managers. Choi personally oversees around 9 trillion won in bonds. His outlook is more hawkish than that of many market observers, driven by the rapid and profound impact of artificial intelligence on the South Korean economy. Additionally, oil price shocks stemming from conflict in Iran have heightened inflation risks, potentially compelling the Bank of Korea to maintain a tight monetary policy. Choi believes crude oil prices will struggle to decline. Even if the Iran conflict subsides, supply chain disruptions are expected to keep oil prices elevated. Given current price dynamics, Choi holds a bearish stance on Korean bonds and advises investors to avoid "vulnerable" 5- to 10-year maturities. Instead, he favors short-term corporate bonds with maturities of up to two years, noting that yields above 4% on some of these instruments already largely reflect the central bank's impending rate hikes. His hawkish forecasts contrast with views from other institutions: JPMorgan Chase anticipates only one rate hike by mid-2027, Citigroup expects at least two, while UOB projects no increase this year. Choi also suggested that the background of new Bank of Korea Governor Shin Hyun-song could influence policy direction. With extensive experience in international finance and policy-making, Shin has "long focused on exchange rate fluctuations and is more likely than his predecessor to consider the won's value in interest rate decisions." Shin will chair his first monetary policy meeting on May 28. He takes office as South Korea's overall economy shows signs of heating up. First-quarter GDP growth exceeded even the most optimistic forecasts. Choi noted that this will impact inflation, stating, "Growth expectations are being revised upward." While the Bank of Korea forecasts GDP growth around 2%, Choi believes "growth exceeding 3% is possible." He highlighted a 2.8% quarter-on-quarter increase in construction investment in the first quarter as particularly noteworthy, remarking that "this sector has a massive impact on domestic demand."
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