Uptrend Factors Should Dominate

The stock market losses sustained this month in the United States and Japan have unnerved investors everywhere. Every major world stock market, including Korea, has sustained damage. In Seoul in March, the market failed to climb over the 600-point level; indeed, it fell below the support level of 550. In recent trading days the market has been trading just under that mark. In Japan, the Nikkei nose-dived on concerns over the economy and the financial sector. On the one hand, not only has Japan's stock market fallen to a 15-year low but the nation's currency has plunged as well. If the yen remains weak for an extended period, Korean exports may suffer from a drop in export competitiveness against cheaper Japanese products. Persons with a somewhat longer investment time horizon than is typical in Korea will have to endure some unpleasantness. But by year-end, the market should be trading closer to 700 and investors with some foresight and staying power should reap some gains.

The reason the Korean stock market is undervalued despite the escalating negative influences from Japan and the United States is because Korea has been through the washer and is now whiter than ever. Having paid back ahead of schedule approximately half of the original sum extended to it by the IMF, Korea has emerged from the 1997-1998 financial crisis. Korea withstood the Daewoo crisis and the near-collapse of its financial sector and unlike other nations in this region, has not returned to cronyism.

There is one bit of evidence suggesting the nation is better off than it was three years ago in terms of structure and transparency. Foreign investors account for more than 30percent of the stocks on the Kospi and have become major shareholders (thanks to the fire sale after the IMF crisis) with managerial control of many Korean companies, including the nation's largest banks, insurance companies, beverage, oil and steel companies. The question becomes just how much more sovereignty must be lost in the name of transparency and structural improvements.

Korea has paid its dues. It was the worst performing market in the world in 2000 when, interestingly, foreigners were doing all the buying. Much of the negativity has already been factored into the stock market. Korea boasts two of the world's largest chipmakers, the world's largest steel producer and the world's largest shipbuilding industry. The number of Internet users in Korea is among the highest in the world and no other country has as high a percentage of broadband per Internet user and absolute number of broadband subscribers in the world. The market remains undervalued, and restoring confidence is the biggest task right now. Lower taxes for long-term retail investors and pension fund investments are steps in the right direction.

But if the Korean market goes down further, defying rational explanation, just remember to chuckle because you're not in it alone and a good sense of humor is good for the soul.

－ The writer is a corporate business analyst at Daishin Securities Co.

by Henry Lee