Market flexes some muscle

Korea’s benchmark stock market has been moving in a positive direction despite recent short-range missile launches by North Korea and the depreciating yen as foreign investors returned to increasing their purchases.

The Seoul bourse yesterday jumped 11 points when the market opened; pushing the index past 1,990 for the first time since April 1. However, the market soon retreated as institutional investors increased their offloading to take profits on the net purchases they made through last week. The market was almost unchanged as it dipped 1.34 points, or 0.07 percent, to close at 1,981.09 yesterday.

Foreign investors who were net sellers until Thursday became net buyers. The 306.9 billion won ($276.2 million) in net purchases by foreign investors and 168.7 billion won net buying by institutional investors on Friday offset 465 billion won in net selling by retail investors and helped the Kospi to climb 15.55 points or 0.79 percent to close at 1,986.81.

There are growing expectations in the market that foreign investors will continue to increase stock holdings as they shift from safe assets such as gold and U.S. Treasury bonds to riskier investments amid optimism that global economies, particularly that of the United States, are starting to recover.

Unlike in the past, where talk of exit strategies spooked investors, recent rumors that the U.S. Federal Reserve could tighten liquidity has been solidifying confidence in a steadily improving U.S. economy. In particular, experts say that considering the significant trade relations between the two countries, improvement in U.S. consumer sentiment will benefit Korean exports.

“There are growing expectations that the global economy will improve in the second half,” said Kim Seung-hyun, economist at Daishin Securities. “Until now the U.S. and Japanese economies have led such expectations and recently such expectations are growing in the local market as well.”

“Last week, it was found that $1.25 billion was injected into global funds in emerging markets,” said Jeon Ji-won, an analyst at Kiwoom Securities. “In particular, $500 million was injected into global emerging market funds, continuing an investment increase for three consecutive weeks.”

The short-range missile launches by North Korea went unnoticed by the Seoul bourse. Experts say the launches were considered routine, and the South Korean government’s efforts to reignite talks with Pyongyang are having a positive effect on the market.

Some experts caution against being overly optimistic, saying several factors could still hold back the U.S. economy.

“Considering the lack of income growth, a significant improvement is unlikely,” said Yu Sin-ik at HMC Investment Securities. “Furthermore, the debt repayment burden could further dampen growth.”

The analyst, however, was more optimistic about the domestic market.

“As the domestic and global economies are contracted, so are consumer spending and production,” Yu said. “In particular, the domestic market is shrinking relatively more than exports. However, facility investment in the manufacturing sector is somewhat improving, which is a positive sign. Considering that the supplemental budget [that passed the National Assembly earlier this month] is concentrated in the first half of this year, the Korean economy in the latter half will likely grow 2.7 percent year-on-year.”

Other factors are keeping the market from pushing ahead, such as the Bank of Japan’s two-day monetary policy meeting that started yesterday.

By Lee Ho-jeong [ojlee82@joongang.co.kr]