SWNOVELXO 110
“To reiterate, it appears that the UK hasn’t prepared any scenarios accounting for the current crisis.”
Dokyung continued his briefing with a resolute tone, as if confident in his assertions.
“First, the UK is experiencing rapid inflation unlike any other developed country.”
Dokyung flipped to the next slide, displaying indicators to support his argument.
This was perhaps the most significant reason why Dokyung viewed the UK unfavorably.
“As you can see from the comparative data, while France recorded a 6% inflation rate and Germany 5%, their economies are already reeling.”
Not all price increases are bad. Moderate inflation can lead to wage increases for workers.
Inflation can also be a means to prevent wages from falling.
That’s why most countries aim for an annual inflation rate of around 2%.
“On the other hand, the UK…”
[+10.1%]
As Dokyung spoke, the UK’s consumer price inflation rate appeared on the screen.
“The UK economy is showing all sorts of alarming signals, with inflation rates reaching double digits for the first time in 40 years.”
Everyone held their breath, alternating their gaze between Dokyung and the data on the screen.
“The most grim aspect is that all of this inflation is due to external factors.”
The screen displayed the current state of the war in Eastern Europe.
“Market players predicted this war would end quickly. No one anticipated it would become such a prolonged conflict.”
The war that began at the start of the year showed no signs of ending even as the year drew to a close.
“The resulting rise in energy prices, especially natural gas prices, was bound to impact the UK economy. After all, 50% of the UK’s electricity production relies on natural gas as a raw material.”
Part Leader Seo Yong-won nodded and focused intently on Dokyung’s words.
“This leads directly to my second point: the increased cost of electricity production is beginning to be passed on to electricity usage fees. Inevitably, real wages are decreasing compared to nominal wages.”
It was simple logic. If monthly electricity bills increase from 100,000 won to 200,000 won, consumption would have to decrease by that much.
Naturally, the amount of money available to spend would decrease relative to one’s income, leading to an economic downturn.
A situation where the economy stagnates while prices rise is called stagflation.
“The problem is that the UK seems unable to control this inflation. As I mentioned earlier, it’s because no scenario was prepared for this.”
“No scenario was prepared?”
When Seo Yong-won asked for clarification, Dokyung nodded.
“It’s not just the UK, but the whole world. All financial markets were operating under the assumption that the economy would continue to improve.”
“Are you referring to the U.S. federal funds rate hike?”
“Yes. No one anticipated interest rates would rise so strongly and rapidly, and many markets were operating based on predictions of low interest rates.”
Everyone nodded in agreement with Dokyung’s words.
“Globally, consumption and investment were based on debt, and there were many policies aimed at increasing income and asset prices.”
In other words, taking out loans to buy houses or consuming with credit cards – all of these actions didn’t have much impact in a low interest rate environment.
“And history repeats itself, especially in financial markets, to a nauseating degree.”
Dokyung flipped to the next slide and took a moment to catch his breath.
Then, with a determined expression, he began to speak.
“Interest rate hikes have historically ended with accidents in the financial markets.”
Everyone swallowed hard at Dokyung’s words.
They were reminded of the Lehman Brothers crisis, the financial crisis that struck the world in 2008.
At that time, to curb soaring inflation, the U.S. began to rapidly raise interest rates, which was passed on to consumers who had taken out loans to buy houses.
Consumers became unable to repay their loans due to the sudden interest rate hike, and as numerous bad debts emerged, triggering a financial crisis in the U.S., it spread worldwide.
“I believe this financial crisis could potentially erupt in the UK this time, rather than in the U.S.”
At Dokyung’s words, Park Hyun-jae from the trading team, who had been listening quietly, furrowed his brow.
“Isn’t that an excessive delusion?”
“Assistant Manager Park.”
Seo Yong-won called out to him, perhaps thinking Park Hyun-jae’s words were too harsh.
“Part Leader, the materials presented are entirely focused on why we shouldn’t invest in the UK.”
However, Park Hyun-jae continued speaking as if unwilling to back down.
“I can’t agree that the UK’s inflation is excessively high. The UK can’t be the only country to avoid global price increases.”
Park Hyun-jae continued, looking at Dokyung.
“The UK recently installed a new cabinet. They will do everything they can to resolve the current situation in the UK. I’m saying the political season has returned.”
The political season is inevitably followed by new policies. During this time, all asset markets are reorganized according to new policies.
“And recently, many countries’ central banks are not following the U.S. interest rate hikes. We’ve entered an era of self-reliance.”
As he said, recently more countries have been refraining from following U.S. interest rate hikes, and the UN has even openly told the U.S. to stop raising interest rates.
“We have a duty to manage our clients’ assets. UK bonds are currently attractive as a new investment destination. The interest rate increase is not as large as in the U.S. or other developed European countries, and the yield is attractive.”
In terms of interest rates alone, this was true. While U.S. bond yields were falling as interest rates rose insanely, UK government bonds were maintaining a stable interest rate of around 2%.
“I understand Assistant Manager Park Hyun-jae’s opinion. Yoon Dokyung-ssi, let’s wrap up.”
As Seo Yong-won concluded, Dokyung nodded.
“I won’t retract my opinion that the UK is likely to become the weakest link.”
Dokyung took a moment to gather his thoughts before continuing.
“Expecting a political season implies, conversely, that the situation is dangerous enough to need to rely on politics.”
Of course, Dokyung was well aware that the capital market and politics were inseparable.
However, the belief that politics would always make decisions favorable to the capital market was dangerous in itself.
“The current situation in the UK seems unlikely to be resolved even through political means. This is because they are all external factors. We should rather pray that policies don’t become a hindrance.”
Dokyung continued with a stern expression.
“As the U.S. dollar strengthens, the British pound and the euro will start to be exposed to risks.”
Park Hyun-jae frowned as he looked at Dokyung, who didn’t avoid his gaze.
“All indicators from the UK are warning us to stop investing there. Moreover, if it’s our clients’ assets, we need to be even more careful.”
This was the crux of the matter. Investments could involve risk, but one had to be prudent.
“If we make investments based on mere expectations, I believe there’s no need for experts like us. Anyone can have such expectations.”
“Are you saying this for me to hear…”
“Assistant Manager Park Hyun-jae.”
As Park Hyun-jae tried to rebut Dokyung’s words, he sat down trembling when Seo Yong-won called his name.
“In the 19th century, miners would carry cages with canaries into coal mines. This was because canaries were sensitive to harmful gases like carbon monoxide. Miners would immediately evacuate the mine if the canary in the cage showed signs of distress, such as stopping singing.”
Dokyung looked at everyone with a serious expression.
“The UK’s inflation could be the canary in the coal mine. We need to recognize that difficult times may be ahead for the UK.”
Everyone nodded at Dokyung’s words.
“The era of liquidity that didn’t need to be sophisticated or explained has come to an end. I conclude my briefing by saying that we need to make more precise judgments using more indicators and manage our clients’ assets accordingly.”
As Dokyung finished speaking and sat down, silence fell over the conference room.
Click- Click-
All eyes turned to Part Leader Seo Yong-won, who was repeatedly clicking an innocent pen.
“I’ve heard both the trading team’s opinion and the macro team’s opinion. Let’s think about this a bit more.”
“Part Leader!”
Park Hyun-jae called out to Seo Yong-won, seemingly dissatisfied with his decision.
“I understand how you feel, Assistant Manager Park. Let’s observe for now. It won’t take long to reach a conclusion.”
“…I understand.”
“Well, thank you all for your hard work in today’s meeting. If anyone has anything more to say, feel free to come see me privately.”
Seo Yong-won gathered his materials and left the conference room. As others started to leave one by one, Dokyung also stood up with his mentor, Hong Se-jun.
“You think you know everything about the world just by looking at the Bloomberg terminal, don’t you?”
At that moment, Park Hyun-jae spoke to the backs of Dokyung and Hong Se-jun, and the two turned to look at him.
“We who work in the field know the market better.”
“Assistant Manager Park, your words are too harsh.”
Hong Se-jun spoke as if warning him, and Park Hyun-jae chuckled.
“Manager Hong, good luck with your parachute. Who knows, maybe the CEO will favor you if you impress the parachute.”
As Park Hyun-jae said this and left the conference room, Dokyung furrowed his brow.
“Parachute…”
“Don’t worry about it. People full of inferiority complexes often can’t see others’ abilities and think they’re just lucky.”
Hong Se-jun said this to Dokyung while patting him on the back, and Dokyung sighed as he watched Park Hyun-jae’s retreating figure before moving on.
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“I don’t think it’s going to work.”
“Manager!”
“Hey, Park Hyun-jae. Didn’t I tell you to control your temper?”
Meanwhile, the trading team manager, who had returned to his seat after the meeting, frowned at Park Hyun-jae.
“I didn’t say anything earlier because others were watching, but don’t be disrespectful to the Part Leader.”
The manager pointed at Park Hyun-jae with his index finger, as if giving a final warning.
“It’s okay in front of me.”
The two were senior and junior from the same university, and it was the manager who had brought Park Hyun-jae to Yuseong Investment Securities.
“But don’t do that to the Part Leader. Understood?”
At the manager’s words, which seemed slightly less angry, Park Hyun-jae nodded reluctantly.
“Yes, I understand.”
“The Part Leader is scarier than he looks. He’s known for being gentle in the company, but if he loses his temper, he could end someone’s career.”
“…I understand. But is it really not possible?”
“I don’t know what’s going on in the Part Leader’s mind. But so far, when the Part Leader has reserved judgment like this, it usually didn’t work out.”
At the manager’s words, Park Hyun-jae sighed.
“Didn’t you agree with my opinion, Manager-nim? If we go into UK 10-year bonds, we can hedge the portfolio stably. Clients are already complaining about falling returns…”
“I know, I know, but do you know who Yoon Dokyung is?”
At the manager’s words, Park Hyun-jae’s eyes trembled.
When news of an employee’s transfer reached the team’s office, everyone talked about him.
To Park Hyun-jae, he was someone who seemed to bring incidents and accidents that others would struggle to experience even once.
Yet everyone praised him. He couldn’t understand it at all.
“Is Yoon Dokyung really that great?”
“What?”
“You know he’s just a parachute hire, right?”
“Just a parachute hire?”
“If the CEO pushed for him, isn’t that what a parachute hire is? And it’s not even during the regular personnel transfer period.”
Park Hyun-jae thought his team members were making a fuss over nothing.
As always in the industry, someone’s information was exaggerated and constantly reproduced through loose-tongued individuals.
“By that logic, you’re a parachute hire too. I’m the one who brought you over from Shinhwa Securities.”
At the manager’s words, Park Hyun-jae’s brow furrowed.
“I’m different. I was producing results at Shinhwa Securities.”
“So is Yoon Dokyung. Do you think just anyone can go to the Leaders Center as a PB?”
The manager looked at Park Hyun-jae with a stern expression.
“Anyway, when Yoon Dokyung makes a call, that’s usually been the conclusion. That’s how it’s been so far. So what do you think the Part Leader’s thoughts are?”
“He could be wrong.”
“Then let him be wrong. That way, the Part Leader will dismiss Yoon Dokyung’s words next time. Right now, the Part Leader will view Yoon Dokyung’s outlook favorably, so what’s the point of shaking things up by saying it’s not right?”
“So you’re just going to wait and see? Sunbae. The market has been really bad this year, and our performance is low. At this rate, next year’s bonus…”
“Are we the only ones struggling? What can we do when the whole world is like this?”
“That’s why we need to take action.”
At Park Hyun-jae’s words, the manager sighed. Then he nodded as if resigned.
“Alright. I’ll try talking to him once more. For now, let’s go back to our seats and keep an eye on the market situation.”
“Please, I’m counting on you.”
“Okay.”
Park Hyun-jae bowed and returned to his seat, looking at Dokyung’s back sitting far away.