Follow the Leader In These Markets

Predicting stock market tops and bottoms with reliability is difficult if not impossible. Very few, if any, authorities will state in clear and certain terms that a market bottom has been reached. Even despite the unprecedented strength in the latest market rebound, with the Nasdaq up 241 points, or 14 percent, for the week, the longest and most powerful rebound in recent memory, only a handful of experts are willing to risk their reputations on calling last week a market bottom. U.S. markets are exerting the strongest influence on the direction of the Korean markets right now, even more than concerns over the financial stability of the Hyundai Group and fears that the government is softening its stance on restructuring.

In the past several weeks, the Korean markets fell as hard as they did in the United States, with the Korea Composite Stock Price Index dropping steadily from March's high of 568 to 493 on April 4, a 13 percent loss. The technology-laced Kosdaq fared slightly worse, falling 16 percent, but not as bad as one might expect given the nasty 24 percent spill in the Nasdaq during the same period. Thanks to the rebound in the United States and the Nasdaq's four-day rise, which hasn't happened since last autumn, Korean markets have shown some life in recent trading sessions, with the Kospi closing at 516 and the Kosdaq at 68.

An expected surge in market liquidity from investment trust companies and mutual funds never happened, which means one less factor which might have broken the Korean markets' links with their U.S. counterparts.

Determining where the Kospi and Kosdaq will trade in the remaining weeks of April will depend on U.S. markets. Since hindsight is really the only sure sign to tell us that we've reached a market bottom and considering the number of times in the past 12 months that temporary rebounds failed to produce a market low in the United States, a healthy amount of skepticism over the recent bounce is in order. The best advice I can offer investors in Korean stocks this month is to watch the U.S. markets closely and look for signs that the U.S. has emerged from the ongoing bear market.

Keep an eye on trading volume levels. Trend reversals are usually earmarked by significant increases in volume. Very few companies will exceed Wall Street expectations. But should there be additional announcements that expectations will be met and the U.S. Federal Reserve hints at another rate cut next month, as long as there is unusually high trading volume, this would be a good entry point in Korean stocks. However, in the event of a downturn when the news goes from fair to worse, support levels are tested and volume increases, investors should look for the exit or stay away from Korean stocks.

If U.S. markets turn south again and recent support levels are broken, I think that the Kospi is likely to fall below 500 once more. Depending on how drastic the drop is in the United States, the Kospi could trade down to 450.

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