Analysis on South Korean Stock Market

By Lee Minji

The South Korean stock market has been on a roller-coaster ride this year as the eurozone sovereign debt crisis, a U.S. economic slowdown and other external uncertainties prompted big swings in investor appetite for equities.

The local market fared better than other global bourses that plunged more than 15 percent this year. From the start of the year, the benchmark Korea Composite Stock Price Index (KOSPI) tumbled 12.58 percent to 1,793.06 as of Tuesday, while the index of the junior KOSDAQ market slipped 4.13 percent to 489.61.

Despite the relatively sound record, the local stock market suffered sharp fluctuations throughout the year as investor appetite swayed amid a spate of economic and geopolitical events around the world.

The KOSPI moved 1.24 percent on a daily basis on average this year, nearly doubling from 0.73 percent last year, according to financial market data. The figure, however, is low compared with 1.67 percent in 2008, when Lehman Brothers pummeled global financial markets.

The KOSPI fluctuated more than 3 percent in a total of 18 sessions this year, with the main stock index plunging as much as 6.22 percent on Aug. 19 as panic over global uncertainties rattled global financial markets, according to the data.

Meanwhile, the main stock index soared to an intra-day high of 2,231.47 on April 27, but dropped to an yearly low of 1,644.11 on Sept. 26.

Amid a number of stock market-moving events, market watchers pinpointed fears over a possible U.S. double-dip recession as one of the major factors that dented stability in the local equity market.

The KOSPI, which had traded at around the 2,170-level in early August, nosedived to below the 1,800-mark in just six trading sessions following Standard & Poor’s first-ever credit downgrade of the United States on Aug. 5.

The eurozone debt crisis, which erupted in Greece before spreading to other European economies, also remained a stumbling block for the KOSPI’s rise all year round.

Geopolitical events and unexpected natural disasters were among notable events that rocked the local stock market. A series of pro-democracy movements that broke out in the Middle East and North Africa as well as the deadly earthquake and tsunami in Japan spooked investor sentiment.

The death of North Korean leader Kim Jong-il was another market mover, with the KOSPI falling 3.43 percent on Monday following the official announcement of the communist leader’s demise.

Meanwhile, some watchers attributed the local stock market’s high volatility to foreign investors, who account for around 30 percent of stock ownership.

Foreigners, who have dumped a total of 8.74 trillion won (US$ 7.58 billion) worth of local shares this year, steeply beefed up their selling starting in August amid heightened fears over global uncertainties.

Leave a Reply