Analysts trying to read an up-and-down Kospi

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Analysts trying to read an up-and-down Kospi

Korea’s benchmark securities index is on a roller coaster, making it hard for analysts to predict when to buy or sell shares.

On Monday, there was fresh optimism about the Kospi’s rebound, as the index rallied 1.55 percent a week with persistent high volatility. There also were expectations that the Kospi would continue rebounding this week. But it closed at 1,915.28 yesterday, down 0.77 percent from the previous day.

Among analysts, there are sharply contrasting views whether the benchmark index has hit bottom.

“Comparing stock price adjustments today with those of the past, the possibilities that prices could plunge further are low,” said Kim Hak-gyun, head of investment strategy at KDB Daewoo Securities.

Like Kim, many market observers see the recently increasing volatility in the Kospi as a positive.

“It is time to sow the seeds [buy stocks],” said Kwak Hyun-soo, senior researcher at Shinhan Financial Group. “After heavy rains, there are a lot of nutrients.”

Such comments reflect the widespread belief that the Kospi has nearly reached its nadir.

Last week, the Kospi kept tumbling and even broke the 1,900 mark during trading Friday due to increased uncertainties triggered by weak indicators in the United States, Europe and China.

U.S. retail sales dipped 0.3 percent last month, more than market expectations. The index is considered crucial in evaluating the overall economy as it represents 70 percent of the country’s domestic demand. The U.S. Producer Price Index also dropped 0.1 percent.

Many analysts had forecast the index wouldn’t go below 1,900, which is a psychological line for investors, owing to Korea’s strong economic fundamentals.

“Many had forecast that the Kospi would hover around 1,880 at the end of this year, but Friday’s fall came earlier than expected,” said Yang Ki-in, head of the research center at Shinhan Financial Group. “After hitting that mark, we expect a rebound at the end of this month or early next month.”

Concerns about the U.S. Fed tapering its bond-buying program, well as the strengthening dollar and weakening euro, are easing, many analysts at securities firms say.

“Since 2009, the Kospi dropped four times due to uncertainties stemming from U.S. quantitative easing and eurozone woes,” said KDB’s Kim. “During those periods, the Kospi fell about 10 percent. Last week, the index went down 8.7 percent in total and foreign investors sold of 3.4 trillion won [$3.2 billion] worth of local shares. Considering these figures, the possibility of a further fall in stock prices isn’t that high.”

On the other hand, some say the index may go down more unless eurozone woes disappear.

“It is true there are high expectations for a rebound, but it is too early to say the Kospi will be restored without seeing that eurozone deflation worries are gone,” said Seo Dong-pil, head of investment strategy at IBK Investment & Securities. “It seems like there needs to be some time before the German economy, the engine of the region’s growth, recovers.”


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