[VIEWPOINT] Little Change Forecast In This Week's Markets

The main factors for last week's Kospi fluctuations and eventual 1.6 percent fall were international market fluctuations, foreign equity trading, expectations of a capital influx resulting from lower interest rates and announcement of government stock market stimulus. Near the end of the week, Nortel's poor business performance and a rise in the U.S. consumer price index sent the Nasdaq down. It gave back its gains earlier in the week and closed the week off 1.8 percent.

The Kospi fluctuated on its own significant news and events without being influenced by the Nasdaq. The capital markets saw more liquidity because of lower government bond interest rates and increasing transactions in low-rated bonds in the market.

That liquidity is expected to flow into the equity market, although it has not yet begun to do so, instead heading for money market funds and government bonds. The major reason for the Kospi's hike was the government's expressed determination to stimulate the stock market. Psychological pressure on the market has been relieved by the government's announcement of more pension funds infusions and relaxation of monetary policy.

Foreign buying was concentrated in Samsung Electronics, Samsung Securities, and Kookmin Bank, with net buying of 472.7 billion won ($380 million). Telecom blue chips such as SK Telecom and Korea Telecom plummeted. POSCO and KEPCO maintained their strength and mid-caps such as Samsung Electro-Mechanics and Hyundai Motors showed comparative strength. As interest rates slid downward, shares of liquidity-sensitive issues showed strong gains by the middle of the week.

The Kosdaq composite index market rose 6.9 percent during the week. As the Kospi was stagnant and there was no strong net foreign buying, private investors' capital was concentrated on the Kosdaq. Despite the weekly gain, the Kosdaq slumped at the end of the week due to caution and profit-taking.

For this week, it is hard to see much improvement in the Seoul markets because international markets are unstable and new money has not flowed into the securities market. Since the beginning of this year, the Kospi has fluctuated on its own significant news and events without Nasdaq influence. But if the Dow and Nasdaq remain in bear territory, we expect the Kospi will find it hard to keep its gains.

Last week's Nasdaq fall and rising Middle East tension are negatives for the Kospi, but that influence may be balanced by government pump-priming and new liquidity. We expect the Kospi will remain about where it is for the time being, but there is a high possibility of profit-taking on the Kosdaq.

But if the Kospi should decline this week, it will provide an opportunity to buy financial sector shares (securities and banking) and mid-cap stocks at bargain prices. In addition, we suggest you pay attention to shares of small and medium enterprises, which have not been noticed for a long time. For this week's Kosdaq, we expect sharp rises in those stocks which do improve, and so we recommend you look for shares which are undervalued based on their business performance.

－ The writer Kim Sang-chul is a senior analyst at Meritz Securities Co.Ltd.