By Yoon Ja-young
The stock market rebounded on Thursday, despite concerns that the scandal surrounding President Park Geun-hye's long-time confidant Choi Soon-sil would have a negative impact on the bourse. Analysts say that the scandal will have only a limited impact on the bourse, while it is likely to accelerate the lame duck period of the President, negatively affecting the stock market.
The main bourse KOSPI closed at 2,024.12, Thursday, up 10.23 points, or 0.51 percent, from the previous day.
As the stock market tumbled 1.14 percent Wednesday following "Choi Soon-sil gate," investors fear that the scandal will further pull down the indices. Growing voices demanding the resignation or impeachment of the President are prompting some investors to say that it reminds them of the impeachment of the late President Roh Moo-hyun in 2004. The KOSPI plunged over 6 percent during six trading days at that time.
"The Choi Soon-sil gate doesn't have direct impact on business activities or household consumption. It doesn't have to do with the real economy," an analyst said. He pointed out that it was small investors who were affected by the political uncertainties during the impeachment of the late former President Roh. While small investors sold 527.9 billion won in stocks during the first month following the impeachment, foreign investors bought 2.9 trillion won worth of stocks.
However, analysts agree that the scandal can negatively affect the stock market by accelerating the lame duck period, with the government losing momentum to go ahead with economic policies as the administration nears the end of the term. President Park Geun-hye's term ends on Feb. 24, 2018. There is still more than a year left until the completion of her term, but market watchers expect that the lame duck period will come earlier than expected due to the explosive effects of the scandal involving her confidant.
Hyundai Securities analyst Kwak Byung-ryul said that the Seoul bourse has been bullish during the first three years of each administration, but it becomes sluggish toward the fourth and fifth years of the term.
He cited the political business cycle theory, according to which the stock market is currently falling.
"As the government has a strong drive for economy-friendly policies in the beginning of a new term, it makes major accomplishments. Towards the end of the term, however, the government loses momentum due to being in its lame duck phase," he said, adding that the bourses were especially bearish in conservative administrations.
According to analysis on the correlation between the administration and the stock market between 1987 and 2012, the stock market rose on average 23.5 percent in the second year and 25.8 percent in the third year of each administration, but fell on average 1.5 percent in the fourth year and 1.9 percent in the fifth.
Some analysts point out that the scandal will further weaken rising momentum which is already feeble.
Lee Sang-jae, an analyst at Eugene Investment and Securities, said that it doesn't matter whether the country attains the government's 2.8 percent economic growth target or not.
"The economy lost sustainability for autonomous growth. Foreign investors may increase Korean shares in their portfolio if external conditions improve, but they would be doing so only because they should buy more stocks from emerging markets in their portfolio. Korea isn't likely to be attracting foreign investors on its own," he said.
The stock market rebounded on Thursday, despite concerns that the scandal surrounding President Park Geun-hye's long-time confidant Choi Soon-sil would have a negative impact on the bourse. Analysts say that the scandal will have only a limited impact on the bourse, while it is likely to accelerate the lame duck period of the President, negatively affecting the stock market.
The main bourse KOSPI closed at 2,024.12, Thursday, up 10.23 points, or 0.51 percent, from the previous day.
As the stock market tumbled 1.14 percent Wednesday following "Choi Soon-sil gate," investors fear that the scandal will further pull down the indices. Growing voices demanding the resignation or impeachment of the President are prompting some investors to say that it reminds them of the impeachment of the late President Roh Moo-hyun in 2004. The KOSPI plunged over 6 percent during six trading days at that time.
"The Choi Soon-sil gate doesn't have direct impact on business activities or household consumption. It doesn't have to do with the real economy," an analyst said. He pointed out that it was small investors who were affected by the political uncertainties during the impeachment of the late former President Roh. While small investors sold 527.9 billion won in stocks during the first month following the impeachment, foreign investors bought 2.9 trillion won worth of stocks.
However, analysts agree that the scandal can negatively affect the stock market by accelerating the lame duck period, with the government losing momentum to go ahead with economic policies as the administration nears the end of the term. President Park Geun-hye's term ends on Feb. 24, 2018. There is still more than a year left until the completion of her term, but market watchers expect that the lame duck period will come earlier than expected due to the explosive effects of the scandal involving her confidant.
Hyundai Securities analyst Kwak Byung-ryul said that the Seoul bourse has been bullish during the first three years of each administration, but it becomes sluggish toward the fourth and fifth years of the term.
He cited the political business cycle theory, according to which the stock market is currently falling.
"As the government has a strong drive for economy-friendly policies in the beginning of a new term, it makes major accomplishments. Towards the end of the term, however, the government loses momentum due to being in its lame duck phase," he said, adding that the bourses were especially bearish in conservative administrations.
According to analysis on the correlation between the administration and the stock market between 1987 and 2012, the stock market rose on average 23.5 percent in the second year and 25.8 percent in the third year of each administration, but fell on average 1.5 percent in the fourth year and 1.9 percent in the fifth.
Some analysts point out that the scandal will further weaken rising momentum which is already feeble.
Lee Sang-jae, an analyst at Eugene Investment and Securities, said that it doesn't matter whether the country attains the government's 2.8 percent economic growth target or not.
"The economy lost sustainability for autonomous growth. Foreign investors may increase Korean shares in their portfolio if external conditions improve, but they would be doing so only because they should buy more stocks from emerging markets in their portfolio. Korea isn't likely to be attracting foreign investors on its own," he said.
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