Struggling to describe crisis

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Struggling to describe crisis

Yesterday’s local stock market nosedive was such a shock that local analysts quit performing their most fundamental duty - forecasting.

Many analysts said trying to speculate when the benchmark Kospi will hit bottom is meaningless at this point, as the market is moving beyond what could be predicted by conventional stock analysis methods.

“Stock prices have fallen so severely that the combined stock prices of all listed firms are only four-fifths of the combined assets of the companies,” said Park Jong-hyun, head of the research center at Woori Investment and Securities. “This shows that the investor sentiment has frozen up in the extreme.”

Some analysts said the current situation is similar to the bear market in 2000 after the dot-com bubble. That analysis is based on fact that the stock market plunge is again accompanied by a contraction in the real economy.

But some said the situation is more serious now, as the economic slowdown is happening in advanced countries rather than just in emerging markets.

Since the 1990s, the local market has endured four long-term downturns. When the Asian financial crisis hit the country in the late ’90s, the Kospi index fell 75.4 percent over a three and a half year period. When the dot-com bubble burst in 2000, the bear market lasted for two years. In 2002, the local stock market again fell into a recession after millions of Koreans defaulted on credit card payments.

“It’s hard to compare the current situation with the Asian financial crisis. Not many local companies are at a risk of insolvency now,” said Kim Sung-joo, the head of the investment analysis department at Daewoo Securities. “The two years beginning in 2000 are most similar to the current time.”

Others analysts said, however, that the ongoing local market crisis could linger for more than two years because it is not just a Korean problem. Nouriel Roubini, a New York University professor who predicted the current global financial woes, said the insolvency in the U.S. financial industry will be equivalent to up to $3 trillion.

“The crisis we see now is as serious as what the world went through during the Great Depression of the 1930s,” said Jeon Byung-seo, head of the Hanwha Securities research center.

Jeon said it will take a considerable time for even advanced markets to recover.



By Jung Kyung-min JoongAng Ilbo [joe@joongang.co.kr]
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