Expectations for KOSPI rebound

Improving outlook for eurozone and U.S. instills optimism


Korea’s major brokerages forecast on Wednesday the KOSPI index might reach 2,100 by year-end, citing improving outlook on the eurozone debt crisis and a faster-than-expected recovery of the U.S. economy.

The main index recouped its losses this month, rising quickly from 1,650 to around 1,900, on the expectations that the protracted sovereign debt crisis in the eurozone might find a breakthrough sooner than earlier predicted.

The rapid rise of the index, however, is widely called “bear market rally,” with a group of analysts warning that an additional upward movement might be limited.

“At the end of the year, KOSPI might reach 2,100, and given that the reduced eurozone crisis factor has been already reflected in the market, the next key momentum might come from the softening of concerns over the possibility of a U.S. recession,” said Kang Hyun-chul, chief analyst at Woori Investment Securities.

“The U.S. economic growth would be relatively solid in the fourth quarter, and President Barack Obama’s stimulus policy, coupled with a seasonal hike in demand during the Christmas shopping season, would help boost Korea’s export volume,” he said.

Kwak Joong-bo, a market analyst at Samsung Securities, said KOSPI might take a breather before staging a recovery run again, but a positive turn in the European countries’ joint efforts to contain the current crisis would help send the index higher.

“A direction of the stock market, however, is likely to depend on whether the country’s economic growth rate recovers to a level seen before July,” Kwak said.

Korea’s economic growth rate is expected to remain sluggish this year, hurt by the turbulence that shook up its key trading partners. The third-quarter growth rate, according to 10 foreign investment banks, is 3.4 percent on average.

Hong Soon-pyo, head of market strategy at Daishin Securities, said the rapid drop of KOSPI since August was largely driven by the fears of a global recession. “The eurozone crisis is now becoming less severe, and a recovery of the global economy is expected by more market participants, which will help KOSPI reach about the 2,000 level by the end of the year,” he said.

Other analysts cautioned that the index’s recovery is reaching its limit in the short term, signaling that investors should go for profit-taking. “Considering the past bear market rallies, a 20 percent rise from the bottom was the end of the short-term recovery,” said Kim Hak-kyun at Daewoo Securities. “The most recent bottom was 1,640 level, so the upper limit is around 1,950 level,” he said.

Analysts also point to lingering worries over the slowdown of the U.S. economy and the eurozone debt crisis. China is also grappling with greater uncertainties over its economic growth, which in turn could pose a threat to export-dependent Korea.

By Yang Sung-jin (insight@heraldcorp.com)