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Flying high, the Kospi breaks 2,000

Bull run continues as fears of a correction worry investors

July 26,2007
Camera crews and reporters stand at the Korea Exchange in Yeouido, central Seoul, yesterday to report the scene of the market when the Kospi advanced to a record high of 2,004.22, rising above the 2,000 mark for the first time. [NEWSIS]

The Seoul stock market rewrote history again yesterday, closing above 2,000 points for the first time. Growing indirect investment, such as mutual funds, and improved financial structure and performance at local companies after the financial crisis in 1997 and 1998, are among the factors contributing to the bullish trend.
It took 13 days for the index to finish above 2,000 points after passing 1,900 on July 12, according to the Korea Exchange.
The total market capitalization at both the main exchange and the Kosdaq hit a new record of 1.1 quadrillion won ($1.2 trillion). The Kospi has soared 39.7 percent from the end of last year.
The local stock market’s expansion is largely attributed to explosive growth in investment in stock-based funds. Compared to Feb. 28, 2005, when the Kospi passed the 1,000-point mark for the first time, investment in stock-based funds increased by 61.3 trillion won to 71 trillion won as of yesterday, and customer deposits at brokerage accounts spiked by 4.9 trillion won to 15.4 trillion won.
The biggest buyers on the local stock market were institutional investors. From Feb. 2, 2005 through yesterday, institutional investors bought a net 15.1 trillion-won worth of shares, foreign investors sold a net 18.9 trillion won, and retail investors disposed of 7.8 trillion won.
After the financial crisis, companies tried to upgrade their financial structure and improve performance. The average debt-to-equity ratio of companies listed on the Kospi dropped to 85 percent at the end of last year, from 340 percent in 1997. Exports increased to $325.5 billion in 2006 from $172.3 billion in 2000.
Some analysts attribute the bull run to better performance at companies and anticipate the continuous expansion of the market in the later half of this year.
“If it appreciated just because of the low valuation of local stocks, the Kospi could not have passed 2,000 points,” said Yoon Ji-ho, a senior analyst at Hanwha Securities Co.
The price earnings ratio (share price divided by earnings per share) of the Korean stock market is still low, at 12.6 as of yesterday, compared to 19.9 in the United States, 22.6 in Japan, 25.8 in China and 16.6 in Taiwan, according to the Financial Times.
However, there are also concerns over a possible correction. “There used to be leading stocks that pulled the index up, such as shipbuilding issues when the Kospi passed 1,800 points, but now there are no such issues, meaning that there are few issues to buy and there is a likelihood of corrections,” said Bae Seong-young, an analyst at Hyundai Securities Co.


By Limb Jae-un Staff Writer [jbiz91@joongang.co.kr]



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