Stocks Plummet After Long Holiday Hangover

The main stock market yesterday fell sharply in the aftermath of the five-day Lunar New Year’s holidays.

The benchmark KOSPI yesterday fell 55.9 points (3.29 percent) from the previous trading day Tuesday last week to close at 1,640.67. The tech-heavy KOSDAQ dropped 12.41 points (1.93 percent) to finish at 629.94.

Stock experts interpreted the nosedive of both indexes as “getting due punishment.”

○ Sluggish U.S. non-manufacturing index

Even before its opening, Korea’s stock market was doomed to a downward spiral. Markets around the world were reeling from jitters over the U.S. economy, while Korea’s closed for the five-day holiday.

The Institute for Supply Management of the United States said last week that its January non-manufacturing index declined to 41.9 from December’s 54.4, the first time the figure has fallen under 50 in five years.

A reading of more than 50 forecasts economic expansion while that under 50 points to contraction. Global equity markets have considered the fall in the index as a sure sign of a U.S. economic slowdown.

Major world markets suffered drops over the five-day period. The Dow Jones average fell 3.59 percent and NASDAQ 3.27 percent between Tuesday and Friday last week.

Britain’s FTSE 100 tumbled 4.02 percent and Russia’s RTS stock index finished 7.05 percent lower over the same period. Japan’s Nikkei fell 5.3 percent and India’s key Sensex 6.42 percent.

Yun Se-uk, head of research at Meritz Securities, said, “Yesterday’s stock market fall was inevitable since overseas stock markets had fallen drastically while Korean stock markets closed for a long holiday. Global stock markets remain uncertain. No one can be sure whether the market has hit bottom or not.”

○ Mounting jitters to linger over short-term

Worry over U.S. economic uncertainty will continue influencing Korea’s stock market for a considerable length of time. Considering the recent spate of negative economic indicators from the world’s largest economy, Korean shares could fall further.

The U.S. retail sales index slated for release tomorrow will also affect global stock markets. In Korea, investors will pay sharp attention to the Bank of Korea’s Monetary Policy Committee, which will hold a meeting tomorrow on the overnight call rate. The committee could cut the rate in line with other central banks worldwide or decide on a freeze to stabilize prices.

Mid- and long-term forecasts for the stock market are also uncertain. Kim Hak-ju, head of research at Samsung Securities, said, “With the credit crunch in the global market, soaring prices and economic slowdown will not go away over the short term, as they will affect global stock prices for a long time.”

○ ‘Black Monday’ jinx

Investors said they are scared of Mondays after seeing the Korean stock market tumble immediately after opening yesterday.

Stock prices have decreased on five out of six Mondays this year, with drops of more than 30 points on four occasions. Shares fell 51.16 points (2.95 percent) on Jan. 21 and 65.22 points (3.85 percent) on Jan. 28.

The KOSPI has fallen every Monday since getting more synchronized with Wall Street. Daewoo Securities researcher Lee Gyeong-soo said, “In the wake of the U.S. subprime mortgage crisis, the Korean stock market has grown more synchronized with the U.S. stock market.”

“Since the U.S. also releases major economic indicators on Fridays, a U.S. stock drop that day influences the Korean stock market the following Monday.”

Indeed, Korea’s stock market has sharply fallen Mondays on five occasions when Wall Street suffered severe drops the previous Friday.

ssoo@donga.com