[Op-Ed] 1st ‘Buy Korea’ Binge in 4 Years

The Korean economy in the fourth quarter of 1998 began recovering from the aftershocks of the Asian financial crisis. On the surface, many workers were laid off due to massive corporate restructuring, but the pace of economic deterioration slowed due to a recession-derived trade surplus. The domestic financial market started to recover amid the rising prices of shares and the rebound of the won. Foreign investors had an expanded capacity to buy Korean stocks following the lifting of the foreign stock ownership cap, and began snapping up Korean stocks that were considered undervalued. This phenomenon was called the “Buy Korea” spree.

The trend fluctuated but continued through the first half of 2004, before reversing course in the second half of that year. The “Sell Korea” spree continued through last year’s second half, when the global economic crisis deepened. The Korean stock market thus entered a state of panic and chaos.

Korea’s “half-baked experts” at that time threatened investors, saying the benchmark KOSPI index could fall below 500 points. U.S. investment strategist Jim Rogers, however, started buying Korean stocks in October last year after predicting a bottoming out of the Korean economy and stock market. At that time, he said that if he invested then, he would earn huge profits four to five years later. The KOSPI has jumped about 50 percent in value, surpassing the 1,400 mark in recent weeks. Rogers accordingly demonstrated that he is a genuine expert unswayed by market sentiment.

Foreigners are flocking to the Korean stock market in droves again. They net bought Korean stocks worth 8.2 trillion won (6.7 billion U.S. dollars) between early March and Thursday. Thanks to the weak won and struggling companies, Korea posted record trade surpluses in March and last month. Foreigners apparently believe that the performances of Korean companies and domestic macroeconomic indexes are relatively better than those in other countries. Foreign investors can also benefit from the foreign exchange rate if the won’s value rises further.

It is premature to believe that the “Buy Korea” binge is a long-term trend. If the recovery of the Korean and global economies is delayed longer than expected, and if Korea suffers from growing political and social uncertainty, foreign investors could pull out of Korea en masse at any time. “Retail investors” could suffer dearly if they belatedly follow suit of foreign investors. Korean companies, the government and society as a whole must make concerted efforts to ensure that the Korean stock market continues to remain an attractive investment destination for both domestic and foreign investors.

Editorial Writer Kwon Sun-hwal (shkwon@donga.com)