Fiscal cliff accord may buoy Kospi

Will the dramatic, last-minute U.S. fiscal cliff agreements help the Kospi take off this year?

Although the Kospi retreated and finished at 2011.94 on Friday, just two days after closing at 2,031.10 on Jan. 2 when the market opened for the first time this year, market analysts say there’s still ample possibility for the local stock market to soar as it will definitely experience an influx of foreign funds generated from a series of economic stimulus measures adopted by developed countries including the U.S. and Japan.

“Foreign funds that were not put into play due to risks posed by the fiscal cliff will flow into the Korean stock market and there’s a possibility that the Kospi could surpass the 2,100 mark within this month,” said Kwak Jung-bo, an analyst at Samsung Securities.

The benchmark Kospi closed at 2,011.25 yesterday down 0.03 percent from Friday.

According to the Korea Center for International Finance, the global stock indexes will be volatile in the first half of the year based on how economies of the U.S., the European Union and China perform.

“The volatility of stock markets in the first half of the year will be high due to uncertainties in the big three markets - U.S., euro zone and China,” said Ahn Nam-ki, a researcher at the center. “But stocks are likely to rise in the second half of the year in tandem with growing optimism for economic recovery of the three markets. Major investment banks share this view.”

In 2012, global stocks began to pick up in the second half of the year thanks to quantitative easing programs adopted by the U.S. and eased euro zone fiscal crisis.

Last year, the MSCI World Index, the gauge of global stock markets, gained 13.2 percent in contrast to the 8.5 percent drop it experienced in 2011.

“The current fiscal cliff deal is not a complete solution and it’s a stopgap given that U.S. congressional members agreed to temporarily delay the billions of dollars of automatic across-the-board spending cuts for another two months,” said Jeon Ji-won, an analyst at Kiwoom Securities. “If the deal was a complete package, we could have expected a surge in stocks and interest rates with an increase in foreigners’ snapping up local stocks. The partial agreement is likely to limit the growth of stocks until the U.S. irons out additional agreements.”

Aside from the U.S., euro zone and China’s economic conditions, the performance of stock indexes will also be subject to other variables ranging from corporate earnings and raw material prices, which are sensitive to political unrest in the Middle East.

According to FnGuide, a stock information provider, local securities firms have suggested 139 listed companies whose operating profits will gain 21 percent more this year compared to last year. But market observers said this is speculative as some are already revising their forecasts as conglomerates cut their spending.

They said the Kospi will react once again today when Samsung Electronics, the nation’s top market-cap company and the world’s No. 1 smartphone maker, announces its preliminary corporate earnings for Q4 of 2012.

While analysts at local brokerage firms are looking to see whether Samsung’s operating profits will surpass 9 trillion won ($8,462) in the quarter, they echo the sentiment that the electronics maker’s performance in the first quarter of this year is even more important for the local stock market.

Meanwhile, U.S. mutual-fund company Vanguard Group’s decision to change the benchmarks used to measure performance of their emerging markets stock index funds to FTSE from MSCI this year may prompt a selling of Korean stocks, but market observers said the impact will be limited and last for a short period.

The FTSE Emerging Index classifies Korea as a developed market and fund managers of Vanguard’s emerging stock index funds must sell its holdings of Korean stocks to comply with FTSE’s classification.
Analysts said Vanguard, which hasn’t yet given a specific time frame of changing benchmarks, will sell an estimated $8.7 billion worth of Korean stocks in a 25-week process.

“Globally, Korean stock market still remains attractive and inflows of active funds may offset the capital outflow caused by Vanguard’s exchange-traded funds,” said Kim Dong-young, an analyst at Samsung Securities.

By Kim Mi-ju [mijukim@joongang.co.kr]