Stock mar­ket pre­dicted to face bleak out­look

The Korea Times - - FRONT PAGE - By Jhoo Dong-chan jhoo@ko­re­atimes.co.kr

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.”

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