"After Indonesia and France, Brazil Faces Fiscal Risks... What About Korea's Economy?" [Weekend Money]

Political instability in emerging markets: A "domino effect"
AI momentum divides the world
Semiconductor boom weathers external headwinds

An analysis has found that fiscal and political instability risks are spreading to Brazil's financial markets, following Indonesia and France. As the global economy experiences K-shaped polarization driven by the artificial intelligence (AI) cycle, the Korean economy is expected to chart a distinct course, supported by strong AI growth momentum centered on semiconductors.

Brazilian President Luiz Inacio Lula da Silva. Yonhap News Agency

According to iM Securities, following President Luiz Inacio Lula da Silva's return to office, Brazil's stock market plunged 14% in a single day, its steepest drop since 2020. The 10-year government bond yield surged 227 basis points from the end of the previous week, while the real slumped 8.7%, resulting in a "triple decline" in stocks, currency, and bond values. The International Monetary Fund (IMF) forecasts that Brazil's fiscal deficit will reach about 8% of gross domestic product (GDP) this year. The analysis said that the absence of a fiscal consolidation plan and a legislature in which opposition parties hold the majority have fueled uncertainty.

"As the AI cycle rapidly transforms the global economy and industrial paradigm, polarization is intensifying not only across industries but also among advanced economies and between advanced and emerging economies," said Park Sanghyun, an analyst at iM Securities. "Growth polarization between economies with AI momentum and those without it is likely to intensify further."

By contrast, the Korean economy is expected to stand out by maintaining solid fundamentals despite external risks. "For the first time in a while, the Korean economy has a strong AI shield that can protect it from external headwinds," Park said. "This differentiation is already showing up in the strength of the won and will ultimately be reflected in the stock market as well."

"The domestic economy will maintain strong growth on the back of the semiconductor supercycle, which is expected to contribute to fiscal soundness," Park said. "Given the likelihood that the twin balances—the fiscal and current account balances—will both remain in surplus, the dollar-won exchange rate is also drawing closer to the 1,200-won range."

This content was produced with the assistance of AI translation services.