Korean stocks will continue to face choppy trading in the coming weeks as there are no clear and positive signs to support market liquidity and investor confidence, analysts said.
External macroeconomic factors such as the tapering of the U.S. quantitative easing and China’s slowdown would be a test for the Korean equity market on whether the benchmark could rise above the 1,900 threshold.
With Korea being highly susceptible to external conditions due to its reliance on exports, it is also unclear whether rosy projections for the U.S. and Korean economies will be enough to cushion local stocks from volatility driven by foreign selling.
Rising inflation toward the latter half of this year will further add downward pressure on equities that have been wavering in response to the unclear path of U.S monetary stimulus.
The Bank of Korea had warned of increasing consumer prices and the U.S. retreat from its unorthodox monetary policy as two key factors affecting Korean financial markets, including the bond market.
Despite assurances from the U.S. Federal Reserve that it would stick to its $85 billion monthly bond purchasing program until it achieves its targets for employment and inflation, U.S.-based investors were still uneasy, prompting the sale of their overseas assets, including those in Korea.
“The Fed’s expected unwinding of quantitative easing, China’s slowdown and uncertainties over fiscal soundness in advanced economies (such as Japan and Europe) pose downside risks,” said Yoon Chang-yong, a senior economist at Shinhan Investment.
“Despite this, Korea will continue to recover on the back of additional fiscal spending and improved external economic conditions.”
China, Korea’s largest export destination, also unveiled a flurry of data showing economic improvements and stabilization.
The direction of the benchmark KOSPI will also depend on how the patent battle between Samsung Electronics, the most liquid share on the stock market, and Apple unfolds, analysts said.
Recently, the Obama administration vetoed a ruling by the International Trade Commission that banned Apple from selling certain iPhones in the U.S. The ITC also ruled last week that Samsung infringed some of Apple’s patents, prohibiting sales of some of Samsung’s mobile devices.
The benchmark KOSPI shed more than 2 percent last week, driven by massive foreign sell-offs on concerns of U.S. quantitative easing.
By Park Hyong-ki (
hkp@heraldcorp.com)
