Stocks Are Shorn By Uncertainty

The Korean stock market has found a savior due to the injection of 300 billion won ($237 million) of pension fund money. The Korea Composite Stock Price Index has even managed to maintain the 600-point level despite continued falling share prices in New York. Although there has been a tendency for some foreign institutions and domestic institutions to sell, overall, there is no major fall in share prices.

Recently, market participants have viewed 600 as a market bottom with increasing skepticism. IT names in particular are falling sharply with Samsung, for example, coming under pressure above the 200,000 won level.

Since last year, I have been expecting the Korean market in the first six months to fluctuate between 500 to 750 points.

According to the Korean government's estimation, the economy will bottom out in the first quarter of 2001 and a recovery will be seen in the second quarter of 2001. Among market observers, opinions are divided as to whether the government's assessment is accurate. The reason for this doubt is due to the fact that various conditions need to be solved for the economy to recover.

Although the government is likely to prioritize the budget distribution to the first half of the year, this would be insufficient to allay market fears about continued instability.

The current Korean Economic situation is highly uncertain, and this is compounded by industry being reluctant to invest in necessary infrastructure, and consumers, concerned about their jobs, prefer to save rather than spend. This is raising fears of stagflation.

In addition, Korea has not been able to solve some of the issues that may assist its economic recovery. For example, the restructuring of the finance industry and problems at Daewoo have not been solved. Joblessness, external factors such as the decline in the U.S. economy, the fluctuation of oil prices and the won's weakness loom.

Considering an uncertain market where there are variable factors, the only factor that would be in favor of the market would be the low interest rate.

The benchmark three-year state bond rates have been stabilized around 5 percent, and just the other day the call rate was lowered to 5 percent. At the moment, there is plenty of cash for investment. The funds are either in the banks, which have lost their "low-risk" borrowers and are forced to find a better method to manage their assets, or coming from retail investors in search of better financial products.

Despite this potential, after repeated disappointment with regard to restructuring measures, investors are cautious. As a conclusion, the market for this week will move in a narrow range with investors most likely to continue to trade blue chip stocks.

by Sadayuki Nakamura