Bear Rampages Through Seoul Stock Markets
By Park Hyong-ki
It's a bird, it's a plane, no, it's what all investors most fear ― a bear.
Over the past two years, the stock market enjoyed a bullish run with investors reaping high gains either through direct or indirect investments.
The culture of investment has grown on the market where the net asset value of mutual funds surpassed 300 trillion won last year.
Seeing that deregulation is to take effect on the capital market early next year, analysts have continued to draw a rosy picture about stocks, forecasting the bull to remain on fire throughout 2008, driven by various factors such as the ``January effect'' and ``new government effect.''
However, no one seemed to expect the U.S. subprime storm to hit the KOSPI and the tech-heavy Kosdaq markets terribly hard at the beginning of the year.
It did. Foreign investors ran for deep cover, dumping whatever Seoul stocks they held worth billions of won, while retail investors have been losing sleep over worrying about what to do with their fund investments ― redeem or not to redeem? That's the question they have been asking since early last month.
Not to mention, many analysts falsely projected that foreigners will soon transform into buying mode, despite the lingering subprime crisis. The Korea Exchange reported that foreign investors unloaded shares worth 8.6 trillion won last month with their total shareholdings down by 35.5 trillion won at 272.8 trillion won. Their equity investments account for 32.08 percent, down from 32.38 percent from last year. Their stake in Seoul stocks peaked at 44.11 percent in 2004.
Fears of an economic recession in the United States humbled global stocks, only to be stopped from a further downturn by the U.S. Federal Reserve's aggressive rate cuts.
Growing volatility on credit woes and a U.S. slowdown immediately led investment banks and economic institutions to revise downward Korea and Asia's growth and equity prospects in 2008. ``The global economic slowdown will likely reduce export growth, and we doubt that domestic demand can fully offset slowing exports (in Korea) in 2008,'' said Kwon Young-sun, an economist of Lehman Brothers.
The government gave assurances that it and the central bank are ready to inject liquidity into the market in the case of a further equity meltdown. Pension funds and other national funds have been deployed earlier than expected on the market for a rescue, and of course, analysts never fail to constantly recommend, ``It is a good time to buy stocks when prices are down.''
The worsening situation is burdening President Lee Myung-bak, who had said the main index could reach 3,000 points in 2008. But it may barely manage to hang on above 1,700. Expecting some economic difficulties ahead, Lee revised down his growth pledge to 6 percent from 7 percent.
In the end, two things remain certain ― it's not so easy to outguess the market; and a bear shows no mercy once it is enraged.