Global growth worries take steam out of Kospi
The panic over the U.S. Federal Reserve raising interest rates subsided last week and the appreciation of the U.S. dollar had decelerated a bit, but foreign investors continued to offload Korean stocks for the seventh consecutive trading day.As a result, the stock market in Seoul further tumbled below the 1,930 mark, which is spooking some retail investors.
The Kospi closed at 1,927.21 after loosing 13.71 points from Friday’s trading. It was the first time since Sept. 2 last year that the Kospi has fallen to this level.
The biggest concern currently is fizzling growth around the world, but especially in the eurozone.
That was a major topic of discussion during the International Monetary Fund’s annual meeting held in Washington last week.
Christine Lagarde, chief of the IMF, said at a press conference on Thursday that Europe is currently showing problems similar to the ones Japan suffered for decades.
“We have alerted to the risks of persistently low inflation, which was one of the attributes of Japan,” Lagarde said. “We are not suggesting that the eurozone is heading toward recession, but we are saying that there is a serious risk of that happening if nothing is done.”
Germany, the biggest economy in the eurozone, revealed statistics last week that were disturbing. Not only was its industrial output in August down 4 percent month-on-month, but also its exports fell 5.8 percent.
IMF projected the eurozone GDP to increase 0.8 percent by the end of this year. While Germany is expected to see its economy expand 1.4 percent, France and Italy - the two other leading economies in the region - are expected to suffer declines of 0.4 percent and 0.2 percent.
The downward spiral of the Kospi started in mid-September and was caused by external factors.
Although the momentum was limited, the market had been on an upbeat rally when Finance Minister Choi Kyung-hwan introduced various economic stimulus policies ranging from tax reforms and easing of regulations.
Even the central bank jumped on the stimulus bandwagon by lowering the key borrowing rate.
However, growing confidence in the U.S. economic recovery helped push up the dollar’s value while further weakening the Japanese yen, which made Japanese exports more competitive vis-a-vis Korean exports.
As a result, the Kospi has been in a bearish rally since Sept. 25. The only time the market saw a slight recovery was on Oct. 7.
The question now is will the market fall below the 1,920 mark and start heading down to 1,900.
Market analysts say one of the biggest problems is that there are no foreseeable factors that could turn the tide for the Kospi.
“There is widening concern about the slowing economy in the eurozone,” said Hong Seok-chan, a Daishin Securities’ foreign exchange strategist.
“Concerns over Korean companies’ disappointing third-quarter performances as well as a weakening momentum of the Korean government’s policies are also factors that are having a negative influence on the market.”
Stock market bellwether Samsung Electronics has also been suffering. Its stock prices nearly fell to the 1 million won ($936) mark.
During yesterday’s trading day, it went as low as 1.07 million won. But by the end of the day, it increased 0.27 percent to close at 1.1 million won.
The biggest reason for the share’s fall has been net selling by institutional investors, who have been offloading Samsung since August.
Market analysts earlier this year were projecting the tech company’s share to reach a new high of 2 million won.
There’s even some doubt over whether the central bank has the luxury of lowering the key interest rate this month to further boost the domestic market and help the stock market because a lower interest rate could accelerate the exodus of foreign investors from the local market.
by LEE HO-JEONG [ojlee82@joongang.co.kr]
with the Korea JoongAng Daily
To write comments, please log in to one of the accounts.
Standards Board Policy (0/250자)