No need to panicAs the Korean stock market continued to plunge, yesterday’s low was beneath the 1,600-point mark.
Compared to last October’s rise, the index fell a mere 23 percent. Markets all over the globe acted jittery as subprime mortgages in the United States spurred big selloffs by investors worldwide.
Most European and Asian stocks shared the loss. Hong Kong fell 11.78 percent, while India’s index slid 9.91 percent and Japan lost 5.15 percent. Signs of stagflation, or large-scale price inflation amid economic slowdown resulting in a recession, are becoming apparent in the United States.
It looks like people who bought stock funds last year are going to lose some sleep over their rapid losses.
Predicting whether the market will hit rock bottom at this point, however, isn’t easy because the recent nose-dive has more to do with fear and less to do with business fundamentals.
As far as the Korean stock market is concerned, its decline is more a result of outside factors, mainly from the U.S. market and China.
If we imagine, that the shaky U.S. market will influence the emerging markets in China and Indiain a worst case scenario, it seems that Korea’s downturn will continue.
Therefore, in order for the Korean market to stabilize, these outside factors must find firm footing or have a soft landing. But how? The U.S. in particular, can help by rescheduling its interest rate cut, originally set for Jan. 31, to an earlier date, or by cutting the interest less than the predicted 0.5 percent.
Only if this is achieved will the Korean stock market recover from the 5.5 trillion won ($5.8 billion) foreign incestor selloff over the last three weeks. A panic-driven sell off can then be avoided.
When we look at the period after the 9/11 attack, we can see that a massive numbers of sellers were driven blindly by fear to sell, only resulting in more losses.
It is time to look at the Korean stock market rationally. Local companies are reporting satisfactory sales, and although stocks are going down, there has been an inflow of 8.86 trillion won worth of stock funds this year. Around 42 percent of that number is equity funds, which are acting as a sturdy pillar of support for the market.