The US’ three major stock price indexes including the Dow Jones industrial average reached an all-time high last week in the wake of brisk operating performances of major US businesses.
The noteworthy American rally is fueling expectations that the Korea’s benchmark Kospi -- which is also a bull market -- could break through the physiological barrier of 2,100 points in the coming weeks.
The Kospi, which peaked at 2,104.41 on July 3, 2015, has ranged between 1,830 and 2,030 over the past year. But it has continuously advanced over the past month to hover around the 2,050 mark.
Some securities firms forecast that the index would approach the next barrier of 2,173.41, which was posted on April 23, 2015, after breaking the initial barrier of 2,100 in the coming sessions.
Some analysts even mention the possibility of the index advancing to the 2,200 mark. The Kospi’s record-high is the 2,228.96 posted on May 2, 2011, on a closing-price basis.
Critics say it is time to be alert over vague optimism. In line with such concerns, US economic indices unveiled over the weekend stayed below market expectations. In addition, there are prevailing projections that the economic powerhouse’s third-quarter gross domestic product will remain bearish.
Meanwhile, foreign investors are inducing an equities rally on the Korean bourse by net purchasing more than 3 trillion won ($2.7 billion) over the past month. Out of the past 30 trading sessions between July 5 and Aug. 16, foreigners net bought 27 sessions.
As local institutions also appear to be shifting their position to net buying recently, continuation of a further rally is quite feasible. The coming weeks could be the touchstone of the local stock market as to whether it has been really undervalued as many local and foreign analysts have assessed.
An eye-catching point is whether foreign investors stop their buying streak and reverse their position to heavy net-sellers abruptly. Regrettably, the local bourse has frequently been likened to an automated teller machine for foreign investors.
Some foreign institutions have made the most of local institutions’ typical trading pattern of short selling irrespective of companies’ business performances. Foreign investors have been able to purchase huge shares of major conglomerates at a bargain thanks to these short-selling tactics.
Financial regulators and the Korea Exchange have continued to pledge to develop the market by instituting a variety of policies to boost the index.
Nonetheless, there is still deep distrust toward regulators among small investors, many of whom complain that prices of local stocks are not dependent on corporate fundamentals, but instead on institutional investors’ sentiment.
