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Market turmoil not over: analysts

July 18,2008
Korea’s benchmark stock index rose 1.2 percent yesterday, backed by an upturn on Wall Street overnight, but few believe this marks the end of the slump hitting the Kospi since the beginning of the year.

Local brokerages say a recovery will come when the United States resolves its financial worries and worldwide inflationary pressures subside.

Kiwoom Securities has been analyzing the Kospi’s bear markets since 1986.

There have been four since then, each of which lasted an average of 28 months. At its low point, each bear market was off an average of 56 percent from the previous record high.

“For the moment, it is down 27 percent from nine months ago, so we cannot say we will soon see the end of the tunnel,” said Byun Joon-ho, an analyst at Kiwoom Securities.

The Kospi hit an all-time high of 2,064.85 on Oct. 31, 2007. It closed at 1,525.56 yesterday.

A wait-and-see attitude is the best investment strategy for now, analysts say.

“Rather than attempting to buy, you had better watch the market until it stabilizes,” said Lee Jong-woo, head of the research center at HMC Investment and Securities.

Some analysts recommend a portfolio suited to a bear market. According to Kiwoom Securities, industries feeding on domestic demand such as pharmaceutical companies, insurers, food makers, energy providers and exporters, including information and technology companies and metal producers, usually fare well in bear markets.

“A conservative strategy focused on domestic oriented industry is desirable for the time being,” Byun said.

Companies that keep large amounts of cash and real estate were also recommended as alternative investments because the values of cash and real estate have risen compared to securities.

Hyundai Securities said Seah Steel, Kolon Engineering and Construction, Husteel, DK UIL and Handsome Corporation matched this description.

Analysts say shares in those companies will weather a bear market better than even those with strong business performances.

As for mutual funds, equity funds invested in undervalued firms, so-called value stocks, as well as small firms and dividend-paying stocks posted higher-than-average return rates.


By Ko Ran JoongAng Ilbo [joe@joongang.co.kr]


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