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Kospi rally expected to continue

Published: 03 Mar. 2015, 21:16

As the Kospi rebounded above the 2,000 mark after five months, expectations of a market rally are spreading across the financial markets.

Seoul’s main bourse opened above 2,000, considered a psychological barrier, for the first time in five months largely owing to eased external conditions and increased liquidity in the market.

The current rally is a signal that global capital is flowing back into the Korean market due to a favorable atmosphere being created across overseas markets. Foreign investors are buying local shares for the seventh consecutive day.

Analysts forecast the Kospi could further rise in the short run as worries about Greece’s bailout and the low possibility of early interest rate hikes by the U.S. Federal Reserve have been reduced lately.

“The latest interest rate cut by the Chinese central bank and Europe’s quantitative easing slated for this month are raising market expectations leading to rallies around the world,” said Seo Dong-pil, an analyst at IBK Securities and Investment. “The global environment has indeed changed.”

Five months ago, the Kospi briefly hit 2,000 but fell back into a range between 1,950 and 2,000 since October largely due to plunges in international oil prices and worsened performances of large conglomerates. The year’s low, 1,876.27, was recorded on Jan. 7.

Both U.S. and European markets are expected to rally for the same reasons.

The Nasdaq, for the first time in 15 years, surpassed the 5,000 mark on Monday. The S&P recorded an all-time high of 2,117.35.

Some market observers forecast the Kospi could reach 2,100 within the first half of the year.

“Before the U.S. Fed raises interest rates, which is expected to be in June, the current positive trend is expected to continue,” said Gwak Hyun-soo, an analyst at Shinhan Investment. “The Kospi might reach 2,100 by April at the earliest. Although the index could repeat a series of rises and falls, we are positive that it will not fall significantly below the 2,000 mark.”

But for robust growth of the stock market in the long run, analysts said, the performance of the real economy and better business earnings are necessary.

“The local market is on a roll now because it has been underestimated for the time being,” said Oh Seung-hoon, an analyst at Daishin Securities. “Unless the foreign buying spree strengthens, further growth will be limited.”

BY SONG SU-HYUN [[email protected]]