Bearish Mode to Continue This Month
By Park Hyong-ki
``When it rains, it pours,'' is what most equity analysts say nowadays when talking about the stock market.
The bearish run is not about to let up soon with the cloud continuing to hover over the markets and pouring the heavy rain of subprime woes.
Although analysts say there was no reason for the Seoul market to take a heavy beating by some 300 points in January when taking into account of the country's fundamentals, an economic slowdown in the United States, the world's largest economy, is a concern for all investors worldwide.
``The U.S. is the ultimate consumption market, even though Korea's export reliance on the U.S. has slowly diminished over the years,'' said Lee Woo-hyun, an analyst of Kyobo Securities.
However, Lee believes that stocks in March will perform slightly better than January as there was no fundamental reason for the market to take a steep loss over the past months.
Lee expects the benchmark KOSPI to fluctuate between 1,650 and 1,800 this month, adding that credit woes will not abate so easily going forward.
In the short-term, the Seoul market may get a boost from expected additional rate cuts by the U.S. Fed when it holds a monetary meeting on March 18, uplifting investor sentiment.
Consensus shows that the Fed is likely to slash interest rates by 25 to 50 basis points as its Chairman Ben Bernanke had said it is ready to preemptively move to prevent a recession, hinting at a possible rate cut.
"This situation calls for a vigorous response," he said in a meeting with bank executives in Florida, urging them to do what was necessary to ease the credit crunch and offset rising foreclosures.
However, global investment banks such as Goldman Sachs, Morgan Stanley and Bear Stearns are expected to disclose their earnings this month that could send another shock wave on global equity markets, including the Seoul bourse.
Adding to the fuel is the triple witching day ahead of the Fed meeting. The triple witching day, which comes four times a year, ignites heavy trading of options, futures and their underlying stocks by program traders as contracts expire, often leading to a big plunge on the market.
Analysts say besides subprime woes, there are other concerns such as inflation on rising oil and food prices that will further undermine investors sentiment.
``I'm afraid there are no positive factors that can really boost the market at this point,'' said Lee of Kyobo.
NH Investment & Securities analyst Lim Jung-seok said although the stock market is showing signs of stabilizing compared to its performance in January, a complete rebound is not likely to happen any time soon.
``We need to wait and see until next month when companies' first quarter earnings are disclosed, and whether their fundamentals are healthy enough to spur the market,'' said Lim. ``Until then, it will be best to look before you leap into stocks.''
He expects the market to perform between 1,600 and 1,750 points in March.