Korean Stock Market Woes Continuing

The new year has just begun, but Korea’s stock market is already showing negative signs. Stock prices (KOSPI index) have plummeted almost 80 points compared to that of the end of last year, and subsequently about 40 trillion won in market capitalization has gone.

Due to economic uncertainties at home and abroad, foreign investors are selling off Korean stocks and so are the institutional investors at the request of individual investors who want to invest in foreign funds instead.

In this situation, some point out that the recent suggestion by President Roh Moo-hyun for a revision of the constitution on presidential term limits is fueling political uncertainties and pouring cold water on already dampened investment sentiment.

In 2007, 39 trillion won has already gone up in the air-

On January 10, in the Seoul Exchange market, KOSPI index fell as much as 30 points compared to the previous day and closed at 1,355.79, down by 18.55 points or 1.35 percent.

As of January 10, market capitalization in both the KOSDAQ market and Korea Exchange has fallen by 39.416 trillion won from 776.725 won at the end of last year to 737.309 won.

In 2007, the KOSPI fell for five days out of seven trading days. After January 2, the first trading day of this year when the index slightly went up by 0.80 points, KOSPI took a nosedive for the fourth consecutive day, and on January 9, it went up by 3.53 points, but on January 10, the index plummeted once again. The KOSDAQ index also closed at 596.78, down 5.17 points or 0.86 percent, once again going below the 600 mark in just two days.

Even stock market experts didn’t expect the precipitative falling would happen in the stock market from the beginning of this year. Rather, they made rosy predictions on the overall stock market throughout this year. They particularly forecasted that stock prices would go up for a while thanks to the “January effect” where more people buy additional stocks with the beginning of a new year.

Economic and political variables are playing negative roles-

Selling-off of Korean stocks by institutional and foreign investors is sending stock prices plummeting from the beginning of this year. Institutional investors and foreign investors have made net sales of 805.3 billion won and 502.1 billion won, respectively.

Experts are saying that the world economic condition as well as stock market situation is heading toward the direction that can be negative to the domestic stock market.

It has become more obvious that investors are turning their eyes away from the domestic stock market.

While the entire amount of money invested in domestic stock-type funds decreased by 1.169 trillion won in December, last year, that of money given in foreign funds increased by 1.147 trillion won. This suggests that individual investors are having such funds repurchased in order to reinvest their money in foreign funds.

Amid this situation, recently increased political uncertainties caused most notably by the abrupt suggestion on the constitutional amendment, is further worsening investment sentiment.

Research center director Lee Jong-woo of Hanwha Securities said, “As investment sentiment is already dampened because of concerns over imbalances between demand and supply and delays of economic recovery, it can be said that such political uncertainties are stirring up the sense of insecurity in the market.”

ssoo@donga.com