Outlook for Stocks: Summer Doldrums

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Outlook for Stocks: Summer Doldrums

Without any strong stocks, additional stimulative factors or active purchasers, the outlook for the local stock market this summer is dim. Some analysts are telling investors to put buying plans on hold, while others are suggesting that investors hunt for bargains if the Korea Composite Stock Price Index, or Kospi, falls a bit further.

Seoul's main exchange closed last week below the 580-point level for the first time in seven weeks. Two moves to spur the market - allowing the government pension fund to invest in stocks and an interest rate cut by the central bank - failed to boost it. The U.S. Nasdaq composite index shed 7.2 percent on a series of earnings warnings from technology bellwether stocks in the United States and Europe.

Most local analysts said it would be difficult for Seoul's main market to recover by the end of August, considering the disappointing profit forecasts from companies in the United States, Korea's main export market.

They also said that there may be no summer rally, which refers to an upward trend caused by fund managers who buy before taking their summer vacations and a general perception that there is less bad news in the summer to drag stocks down.

An executive at Hyundai Securities Co., Chung Tae-wook, said investors should put off buying plans. "The earnings of U.S. firms are not likely to improve in the third quarter," he said. He also said that the technology sector would not turn around until at least the second quarter of next year.

An official at Daewoo Securities Co., Lee Jong-woo, also advised caution. "Foreign investors will probably not be buying for a while, because Wall Street is tottering," he said. "The stock market will remain bearish until investors are convinced that the economy is improving."

Other analysts advised investors with long-range vision to pick up bargains if the Kospi slides near the 550-point level. They expect the economy to rebound in the fourth quarter, saying that the market anticipates business conditions by about a quarter.

A senior researcher at Samsung Securities Co., Kim Do-hyun, said that the market would begin to show signs of recovery by the end of summer. "The market will touch bottom soon," he said. He recommended that investors pick up small- and medium-cap shares with improved earnings pictures.

The president of Mirae Asset Investment Trust Management Co., Koo Jae-sang, also said that the index's losses will be limited. "The Kospi could fall further this summer, but it will not go below 550," he said.

Mr. Lee at Daewoo Securities said that if the main market drops to around the 550-point mark, low-price small and medium-size shares will be strong. He recommended that investors buy pharmaceutical stocks.

An executive at Regent Securities Co., Kim Kyeong-shin, also expects small- and medium-cap shares to be strong, especially preferred stocks, pharmaceuticals and shares under negotiations for mergers or acquisitions.

Most analysts agree, though, that investors gunning for short-term gains should not try to pick up bargains, because they expect the market to remain weak through July and August.



by Lee Hee-sung

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