'Relief rally' to be short-lived
By Kim Tae-jong
Seoul shares jumped in a relief rally Monday after the victory of pro-bailout parties in the Greek elections that could stave off the country’s exit from the eurozone, analysts said.
But they noted the initial positive market reaction could prove to be short-lived as there are still plenty of hurdles ahead.
The Korea Composite Stock Price Index (KOSPI), which fell Friday due to mounting concerns ahead of Greece’s critical elections, moved up 1.81 percent, or 33.55 points, to close at 1,891.71. During morning trading, the KOSPI even surpassed the 1,900 mark, for the first time since May 14.
“It is definitely a relief rally,” Kwak Joong-bo, an analyst at Samsung Securities, said. “The market reacted positively to the outcome of critical elections in Greece, which gave way to investor relief.”
He forecast the market may show a moderate rise for a while but he doubted the initial rise will lead to a long-term upturn, adding the eurozone crisis has not yet ended.
In the past month, investors have gone through a roller coaster ride, largely due to renewed fears over another economic downturn fueled by the Greek crisis.
The KOSPI sank below the psychologically-important 1,800 mark to close at 1,782.46 on May 18, the first time for it to drop under that point since Dec. 20 last year. Later, it showed a moderate rise to stay above the 1,800 mark for weeks but fell sharply to 1783.13 on June 4.
Other analysts also point out that the Greek election result came as a relief for investors but the market is still volatile due to various external factors that could have a negative impact on it.
“The KOSPI could move up to 1,950 thanks to the election results as they have removed immediate concerns,” Rhoo Yong-seok, an analyst at Hyundai Securities, said.
“But without practical and detailed growth plans and impressive second quarter earnings results, it will be hard for the KOSPI to move further up.”
He also noted that the results from upcoming meetings such as G20, EU summits and the U.S. Federal Reserve committee will play an important role as a step to fight the financial crisis and sluggish global economy.
The G20 summit will be held in Mexico from Monday to today amid the weakest global economy since the 2009 recession while European Union leaders hold their own summit in Brussels from June 28 to 29 to discuss a road map to closer political and economic union as a means of staunching the turmoil. Federal Reserve officials are also expected to come up with risk management plans during their meeting from June 19 to 20 to spur U.S. growth.
Lee Seung-woo, an analyst at Daewoo Securities, said that problems in Spain and Italy will remain as negative obstacles that prevent the local shares from moving upward.
“I think the KOSPI could move up and down around 1,900 points for a while, because uncertainties still remain in the issues regarding Spain and Italy,” he said.
The financial authorities also said they will keep monitoring external factors that have an impact on the local financial market and cope with any emergency situations.
“The election result has led to short-covering in the form of relief rally, but the eurozone crisis is not yet over,” the Financial Supervisory Commission said in a statement after an emergency meeting. “We will follow up the results of upcoming crisis meetings as well as monitoring the local financial market.”
Another important issue that could affect the movement of the local bourse is a decision by MSCI, which will release the results of its 2012 annual market classification review on June 20.
MSCI is reviewing Korea and Taiwan for a potential reclassification as developed markets. The two countries previously failed to win the developed-market designation from MSCI in June last year.