Stock market predicted to face bleak outlook
Foreign investment banks (IBs) have been rushing to paint a bleak outlook for Korea’s stock markets, saying Seoul shares will remain bearish for the foreseeable future on the ongoing U.S.-China trade dispute and disappointing corporate earnings.
According to the Korea Center for International Finance, Friday, the Bank of America (BofA) said the nation’s stock market is “very sensitive to the global economic cycle” and is likely to suffer side effects from the trade dispute between the U.S. and China.
Adding corporate businesses also fell short of expectations in the third quarter, BofA downgraded its forecast for Korea’s growth rate this year by 0.1 percentage points to 2.7 percent.
Another U.S.-based IB giant JP Morgan also recently downgraded its forecast for the nation’s growth rate this year to 2.6 percent because it claimed global semiconductor sales won’t maintain their current boom next year.
Standard Chartered agreed. “We see massive cash outflow from Korea’s stock market reflecting foreign investors’ fear that semiconductor boom may not last until next year,” the London-based IB said in its recent analysis. “Semiconductors accounted for 20.6 percent in the nation’s total exports of the first half of this year.”
Admitting Seoul shares are underrated at the moment, however, global IBs said it will take long for stocks to recover their real values.
“The re-evaluation premises the improvement in corporate governance system while easing the country’s geopolitical risks,” Citibank was quoted as saying in a Korea Center for International Finance report. “It will take long.”
JP Morgan said there is still a lack of momentum to boost stock price rises.
“Shares are underrated,” it admitted. “However, corporate earnings are worsening, and the economy is still too weak.”
Domestic analysts said foreign IBs’ analysis of the future course of the nation’s stock market is reasonable.
“I believe the nation’s chipmakers will post solid sales even in the second half of the year,” IBK Securities researcher Kim Un-ho said.
“The DRAM prices will decline a bit by the end of this year, but the supply chain will be good enough to withstand the demand. It’s necessary to see if they maintain the momentum next year.”
LG Economic Research Institute agreed the semiconductor boom won’t last until next year.
“Chipmakers’ exports have been the backbone of the nation’s economy this year, but they aren’t expected to maintain the momentum next year,” it said in a report released on Sept. 20.
Market insiders stressed the importance of the government’s role to attract more investors.
“Korea’s stock is huge in size, but is still vulnerable to external factors,” NH-Amundi Asset Management director Lee Jin-young said during an Oct. 31 conference at the National Assembly. Organized by Rep. Kim Byung-wook of the ruling Democratic Party of Korea, the conference was held to discuss the market.
“The government should provide tax benefits for long-term investors while easing related laws to attract more investors.”