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Korean Stock Market Hits All Time High

Posted September. 27, 2005 05:56,   


Korean stock prices hit the 1,200 mark, the first time ever that the Korean stock market has reached that level. Few people expect the upward swing to stop there. Optimistic predictions are prevailing, and talk of stock prices is everywhere.

Most experts believe that an American-style equity market rally started. However, some point out that it would be better for beginners not to start investment prematurely, since stock price rose too much in a short period of time.

A U.S.-style Equity Market Rally?-

The Dow Jones Industrial Average (DJIA) shuttled between 600 to 1,000 from 1961 to 1982. The DJIA, which started at 776 in August 1982, reached 1,287 in November 1983, opening an era of four-digit stock prices. Afterwards, the index kept rising up to 10,000 for more than 20 years, which means stock market was elevated to another level at the turning point of 1982.

Many experts view that the current Korean stock market is in a similar situation to that of the U.S. in 1982. Korean stock prices, which have stayed between 500 to 1,000 since 1987, are opening the era of a four-digit stock price index with increasing number of investors making long-term investments through indirect investment.

Park Hyo-jin, an analyst with Good Morning Shinhan Securities, said, “As evident with slow economic growth, the start of long-term investments through indirect investment and the strong restructuring of companies, the situation of Korea of today is similar to that of the U.S. in the past in many ways.”

Lee Jong-woo, the director of the research center of Hanhwa securities, explained, “Foreign investors recently continue to sell stocks, but abundant money from individual investors are underpinning the market.”

For example, although the net sale of stocks by foreigners amounted to 279.5 billion won on September 26, institutional investors underpinned the stock market by posting 407.8 billion won in net purchases.

The amount of money invested in equity funds reached 16.411 trillion won as of September 22, a 7.859 trillion won increase from late last year (8.552 trillion won).

How High Will the Stock Price Rise?-

Most agree that the stock price will go up in the long term, but there is a large gap in prediction.

Lim Chun-su, director of research center of Samsung Securities, presented a cautious forecast, “The trend shows that it will go up steadily, but the stock price index of late this year will be 1,270.”

Lim explained, “As the pension system is put in place and money flows into installment funds, foundations for a long-term rally were laid.” But he also added, “It is hard to expect a drastic rally because the Korean economy still sensitively responds to the global economy and shows an unstable business fluctuation.”

Meanwhile, Jang Deuk-su, head of the asset management division of TaeKwang Investment Trust Management, said, “Hitting the 1,500 mark is possible in 30 months,” adding, “Above all, the stock price is rising when the economy is at its bottom. And the vitalization of indirect investment is positive.”

Lee Chun-sun, the head of the stock management division of Daehan Investment Trust Management said, “It is hard to estimate the target stock price of late this year,” but predicted, “The upward trend will not be reversed. Even if there is some adjustment, it will be a short one.”

How Should Individuals Invest?-

Lee of Daehan Investment Trust Management said, “Individual investors should pay more attention to the basic structure of companies.” His advice means that investors should know about stocks before investment because it is difficult for even experts to make a portfolio in this bullish period.

Lee of Hanhwa Securities said, “It is time to jump into the stock market,” adding, “A long-term investment in a bearish period might well cause damage, but an equity market rally like this one is a perfect period for long-term investment.”

However, he also added that a long-term prediction could worsen if performance of companies does not improve as much as expected or if economic recovery is delayed.

Meanwhile, Park of Good Morning Shinhan Securities said, “You need to invest cautiously for a while after hitting the 1,200 marks,” emphasizing, “Although the market shows a long-term upward trend, it’s better to start investment when the stock index adjusts by more than 50 points with a long-term perspective.”