Investors Shrug Off Rate Hike
By Park Hyong-ki
Staff Reporter
The key stock index closed above 1,900 points for the first time as investors shrugged off the central bank's interest rate hike to absorb excess liquidity in the money market.
The benchmark Korea Composite Stock Price Index (KOSPI) closed, up 19.79 points, or 1.05 percent, at 1,909.75. The KOSDAQ index closed up 8.2 points, or 1 percent, at 828.22.
Most other Asian markets closed higher on overnight Wall Street gains. Taiwan share prices closed 0.68 percent higher on active trading, while the Hang Seng Index gained 1.4 percent. All other benchmarks climbed, except in Thailand and Japan, where the Nikkei 225 Stock Average lost 0.4 percent as the Bank of Japan kept its key interest rate at 0.5 percent.
The Bank of Korea (BOK) Thursday raised its key short-term interest rate by 25 basis points for the first time in 11 months to 4.75 percent.
BOK governor Lee Seong-tae made it clear that the central bank will raise its rate again in the second half if prices and liquidity conditions justify a further tightening of policy.
Many analysts forecast the central bank will hike the rate at least one more time this year in view of robust exports growth and reviving domestic consumption.
The overnight inter-bank borrowing rate had been kept at 4.5 percent since August last year.
The rate hike failed to take steam out of the bull run of the stock market, however.
``Institutional money is continuously flowing into stock funds, and pumping up the bull,'' said Lee Woo-hyun, an analyst at Kyobo Securities.
Some 400 billion won a day is estimated to pour into such funds amid the stock boom, according to the broker. And despite option expiries, selling pressure was not that big.
Lee added investors are also drawing confidence from corporations that they believe will post solid quarterly earnings.
LG Philips LCD kicked off the earnings season early this week, reporting an impressive turnaround. Samsung Electronics will announce its earnings today.
Analysts say tech shares will re-emerge into the spotlight though Samsung will remain weak in operating profits for the second quarter. But many expect the industry to post gains in the latter half after touching bottom, further hiking the stock market.
Analysts say that the rate hike will not slow down the stock market as it climbs toward 2,000 by the year's end.
``This is not going to affect the market as it had already been aware that the central bank was going to raise the interest rate at one time or another,'' said Won Jong-hyuck, an analyst at SK Securities.
In the short-term, the rate increase might cause Seoul stocks to rise at a slower pace, but the supply of money still remains ample on the market to boost stocks, Won added.
Analysts, however, cautiously noted that rising oil prices and a possible interest rate hike in the United States which is having problems with subprime lending could weaken investor sentiment around the world, including Korea.
The U.S. Federal Reserve kept its key interest rate frozen at 5.25 percent last month, citing that its core inflation level was stable and economic growth needed to improve.
U.S. stocks rebounded Wednesday on merger and acquisition themes and expectations of positive corporate earnings in the second quarter.
Although Seoul stocks are surging to a new level, analysts say they are still undervalued by 10 percent to 20 percent compared with other advanced markets.
``Price-earnings ratio of stocks such as IT, automobiles and financials are still comparatively lower than they should be,'' said Won.