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Composite Investment Index Falls to Lowest Level Since 2008
Investment Sentiment Deteriorates due to Regulations
Composite Investment Index Falls to Lowest Level Since 2008
  • By Jung Suk-yee
  • January 3, 2019, 10:04
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The composite investment index for 2019 has fallen to the worst level since 2008.

The composite investment index of major Korean companies for 2019 has fallen to the lowest level since the government began to calculate the index in 2008.

The index is based on five indicators – the investment trend index, the investment sentiment index, the investment performance index, the entrepreneurship index and the investment condition index. The index is calculated by subtracting the percentage of companies that answered “no” to the question from that of companies that answered “yes” to the question, and then adding the standard value of 100 to the result. For example, if 60 percent of the companies said “yes” and 40 percent “no,” the index becomes 120 by adding 100 to 20 (60-40). The Individual index ranges from 0 to 200, with a neutral value standing at 100.

The 2019 investment composite index fell to 107.4 from 112.5 in the second half of last year. It was the lowest figure since the government began to compile such statistics in 2008. Investment performance was good, but investment sentiment was to blame. Investment in 2018 was slightly higher than in 2017 and the investment trend index in 2019 rose to 113.8 from 95.8 in the second half of 2018. Asked whether or not investment in 2018 increased from the previous year, 63.8 percent of the surveyed companies answered yes. However, investment sentiment deteriorated sharply. In 2019, the investment sentiment index dropped to 136.7 from 155.8 in the second half of 2018. Asked whether they would stick to their current investment plans, 80 percent of them said yes, but only 56.7% said they would continue to invest even if the economy deteriorates in 2019.

The worsening return on investment is also expected to have a negative impact on corporate investment. The investment performance index for 2019 was 111.5, down from 118.5 in the second half of 2018. In response to the question of whether or not their investment return in 2018 was satisfactory, 54.8% of the surveyed companies said yes. The percentage dropped from 57.3% half a year ago. Of the total, 56.7% expected that they would earn as much as they invest in the future, which is lower than 61.2% in the second half of 2018.

The entrepreneurship index also declined. In 2019, the index sat at 122.3, down from 136.2 in the second half of 2018. Eighty percent of the companies said, "Even if there is some risk, it is time to discover and promote new businesses." The figure still remains high, although it fell from 90.8 percent in the second half of 2018. However, 57.7% of them said no when asked whether or not they would make investment despite big investment risk. This suggests that although companies desperately needed to discover new growth engines for their future by investing in new businesses, various actual conditions precluded them from making aggressive investment.

This is proven by the decline in the investment condition index, which shows investment conditions and future improvement prospects. The index slid to 52.5 from 56.4 in the second half of 2018. It was the lowest since the calculation of such statistics in 2008. When asked whether or not they were satisfied with investment conditions, 78.6 percent of them said that they were not. About 70 percent of the companies shook their heads even when asked whether or not they expected an improvement in investment situations in the future.

By industry, the steel, information and communication technology (ICT), electricity and electronics, pharmaceuticals, and bio industries recorded high composite investment indices. The steel and ICT industries recorded 140.0, the electric and electronics industries 138.4, and the pharmaceutical and bio industry 135.6.