Local brokerage firms predict moderate growth for year 2008

The Korean economy is likely to maintain its current growth pace in the first half of this year but is expected to slow down a little in the second half. Higher inflation and slowing exports may cut into the country’s bottom line, while uncertainties still lingering from the subprime crisis in the United States may dampen the world’s economic growth.
Stock brokerages are still optimistic about next year’s stock market, although they said it is going to be volatile due to external factors, such as slower U.S. consumer spending and growing inflation in China.
Local economic research institutions and the central bank estimated slightly different economic growth rates for this year but agreed that the economy could slow down in the last six months.
The Samsung Economic Research Institute predicted in a report on the economic outlook for 2008 that the Korean economy will grow 5 percent next year. The economy is going to expand 5.2 percent in the first half and 4.6 percent in the second half, according to the report. The fallout from the subprime crisis is swelling, but there are still no signs that the U.S. economy is slowing more than expected. That nation’s economy grew 3.4 percent in the third quarter, and U.S. employment statistics are also favorable, the report said.
Exports are expected to have double-digit growth at 11 percent, while consumer spending will grow 4.7 percent in the first half year on year. Capital expenditures are expected to remain above 7 percent due to improved consumer spending and a high factory operating ratio for the whole of this year. Capital expenditures are expected to grow by 6.3 percent in the first half and 7.9 percent in the second half. The construction market is going to improve a little, growing 3.1 percent next year, as the expansion in non-residential construction is going to offset stagnation in housing construction, the SERI report said.
The Bank of Korea is slightly more pessimistic about the economy, anticipating 4.7 percent gross domestic product growth for the whole of this year. The BOK estimated that the economy will grow 4.9 percent in the first half and 4.4 percent in the second half.
The central bank said service sector employment is going to grow steadily as restructuring in the retail industry is nearly finished, but manufacturing employment is going to decline. The number of the employed is going to grow by 300,000 next year, a small increase from 290,000 this year, the BOK predicted. Capital expenditures are going to grow 6.4 percent in 2008 compared to 7.6 percent this year due to uncertainties about the world’s economies. The construction market is expected to expand 2.8 percent due to increases in non-residential construction, compared to 1.8 percent this year, the bank predicted.
The LG Economic Research Institute said higher prices for international produce and crude oil are expected to add inflationary pressure in Korea. LG estimated next year’s economic growth at 4.9 percent, as moderate improvement in consumer spending is going to make up for slower exports growth. The won to dollar exchange rate will stabilize, with an annual average of 905 won to the dollar. The institute predicts that the won’s strength will grow more slowly than in 2007. This means that the won’s appreciation is less likely to offset increases in import prices. LG estimated next year’s inflation at 3.2 percent.
Imports are going to grow faster than exports, while the service account deficit is going to expand further, putting the current account in the red, LG said in a report.
Most Korean brokerages expected Korea’s benchmark Kospi index to maintain its upward momentum next year thanks to strong fundamentals at local companies and the national economy.
Woori Investment and Securities predicted the Kospi would move in the range of 1,850 to 2,500 points.
“The year 2008 presents both risk and opportunity, but considering the continuing growth in companies’ values, we expect the stock market to rise further next year,” said Park Jong-hyun, a chief analyst at Woori.
Park said the growth rate of the world economy next year will reach 4.8 percent driven by the emerging markets. As for Korea, Park said its economy will grow by as much as 5.1 percent, while local companies will see their net profits rise by as much as 29 percent.
Specifically by quarter, Park forecasts the Kospi would move within the 1,850 to 2,000 point range in the first quarter; 1,950 to 2,300 in the second; 2,200 to 2,300 in the third; and 2,200 to 2,500 in the fourth.
Hana Daetoo Securities had a similar optimistic forecast, saying the Kospi would grow by 1,800 to 2,500 points in 2008.
Kim Young-ik, a senior researcher at Hana Daetoo, said Korea will benefit from the higher premiums that all Asian stock markets will be enjoying.
“Stocks on the Asian stock markets in general will become more attractive because business activities and economies in the region are expected to see steady growth for several years to come,” Kim said.
He said the ever-increasing cash flow from savings accounts to mutual funds is another reason he expects a stronger rally in the Korean stock market next year.
He said the benchmark index will move within the 1,800 to 2,250 point range in the first quarter; 1,900 to 2,300 in the second; 2,100 to 2,500 in the third; and 2,200 to 2,500 in the fourth.
Goodmorning Shinhan Securities, Samsung Securities and NH Investment and Securities were all less optimistic.
Moon Ki-hoon, a Goodmorning Shinhan analyst, said the index will rise to 2,150 in the first quarter next year but tumble again to 2,000 in the second. Kim Hak-joo, a chief analyst at Samsung, forecast the Kospi will drop to 1,715 points in the second quarter.
Lee Jong-seung, a researcher for NH, said the index would stay between 1,650 and 2,100 next year.
“In the short-term, the stock market may rise further driven by high expectations, but inevitably it will be followed by a correction midway through the year,” said Samsung’s Kim Hak-joo. “The correction is expected mainly because of external factors such as sagging consumer spending in the United States, rising inflation pressure in China and increasing oil prices. China will possibly also experience a credit crunch.”

By Limb Jae-un, Moon Gwang-lip Staff Reporters [jbiz91@joongang.co.kr]