By Na Jeong-ju
A stronger Korean currency and the jitters over growing household debt are weighing heavily on the Korean economy, making Korean firms less attractive for foreign stock investors.
The benchmark KOSPI slid 1.8 percent in January, while its counterparts in the United States, Japan, China and other major countries continued their upward momentum.
Analysts say such a decoupling of local stocks from the global market could continue in the coming months because the Korean economy is now overshadowed by numerous downside risks, including Japan's move to weaken the yen against other major currencies, the sluggish global economy and growing woes about household debt.
It appears that a turnaround is not in sight.
"The local market is expected to remain isolated from the global boom for the time being," said Woori Investment and Securities analyst Park Hyung-joong.
"There are some positive signs for Korean stocks _ China may adopt an economic stimulus package and the Bank of Korea may cut interest rates. However, such measures are unlikely to be taken in the first quarter."
What makes the stock market here more uncertain is the worsening confidence in Korean shares among foreign investors. Last month, the net selling of listed Korean shares by foreign investors reached some 2 trillion won, in stark contrast to a month earlier when they bought a net 3.9 trillion won worth of stocks here.
They also purchased a net 61.6 billion won of bonds in the Korean market last month, a sharp decline from 5.98 trillion won in December.
On the other hand, global stocks rallied in January. The Dow Jones industrial average rose by 5.8 percent in January, Japan's Nikkei 225 by 7.2 percent, China's Shanghai Composite Index by 5.1 percent and Hong Kong's Hang Seng by 4.7 percent.
European stocks also joined the bullish run ― Germany's benchmark index rose by 2.1 percent, Britain's by 6.4 percent, France's by 2.5 percent, Italy's by 7.2 percent and Spain's by 2.4 percent.
The average price-to-earnings ratio of shares on the KOSPI was 8.69 as of the end of July, which was much lower than 13.68 in the United States, 12.95 in Japan, 10.49 in China, 14.52 in Taiwan and 11.24 in Germany. That means Korean firms are much more undervalued than their global competitors.
"It may take time for Korean stocks to see a rebound because the won's ascent may weigh down investor sentiment further," said Park.
The specter of a possible debt crisis is also haunting the economy as heavily-indebted families are exposed to greater risks of defaults amid worsening economic conditions.
The country's household debt reached a record 937 trillion won ($876.9 billion) as of the end of September, tantamount to more than 70 percent of Korea's gross domestic product.
The country's household debt-to-GDP ratio reached 81 percent, exceeding 73 percent of the OECD average.
The credit problem could raise uncertainties for the Korean economy this year despite the government's efforts to minimize its impact.
Policymakers are now debating whether the new government should rescue the troubled defaulters or delinquents using taxpayers' money.
The gloomy outlook on the overall fundamentals of Asia's fourth-largest economy is making foreign stock investors more cautious in betting on Korean firms as a stronger won is feared to dampen the country's exports.
A stronger won makes Korean goods more expensive in overseas markets and dents local firms' earnings.