KOSPI to Test 2,000 Again on US Rate Cut
Seoul Bourse Awaits Possible Inclusion of Key Index Into FTSE Developed Markets Today
By Park Hyong-ki
Staff Reporter
Stock markets worldwide breathed a sigh of relief as the U.S. Federal Reserve boldly slashed its benchmark interest rate by more than what global investors had hoped for _ a half a percentage point.
The benchmark KOSPI edged up 64.04, or 3.48 percent, at 1902.65 Wednesday, while the tech-heavy Kosdaq rose 9.22, or 1.18 percent, at 784.67. The Dow Jones Industrial Average closed up 335.97 points, or 2.51 percent, at 13,739.39 Tuesday, its highest one-day rally in nearly five years.
The Fed's key rate cut by 0.5 percentage point to 4.75 percent is aimed at stabilizing the housing and credit markets troubled by deepening subprime woes, which could put the world's largest economy into recession.
``The action is intended to help forestall some adverse effects on the economy that might otherwise arise from disruptions in financial markets and to promote moderate growth over time,'' the Fed said in a statement.
Its overnight decision spurred investor sentiment in Korean equities, boosting the broader stock market Wednesday.
Also, with businesses expected to post healthy balance sheets for the third quarter, analysts are positive about the benchmark KOSPI hitting the 2,000 mark again.
``Factors such as strong fundamentals and the efforts to ease the credit market can help the market regain its confidence in rallying toward 2,000,'' said Chung Young-wan, head of the investment strategy team at Samsung Securities.
The main bourse hit a historic 2,004.22 in late-July with market capitalization of 1,104 trillion won on abundant liquidity.
However, the market soon lost its momentum afterwards on the worsening of U.S. subprime lending, exposing global financial firms that invested in securities backed by mortgages to greater default risks.
The lowering of its federal funds rate is seen by many analysts as a means to foremost resolve the credit problems by the U.S. central bank and prevent an economic recession.
``We can be assured that the market is on its way to stabilization, and the focus will naturally shift to corporate quarterly earnings,'' said Cho Jae-hoon, a senior analyst at Daewoo Securities.
As they are expected to gain solid profits, Cho said the outlook for the stock market is bright, and it will gradually climb upward during the rest of the year, instead of abruptly see-sawing as it did over the summer.
Kim Young-ick, research head of Hana Daetoo Securities, noted that the Korean stock market will remain attractive at least until 2009 on the back of rosy global growth, including China, the country's main export destination.
As Korea is on the verge of touching $20,000 per capita GDP, the stock market is likely to pick up momentum over the long term.
``Based on these, I strongly believe that the market will rebound to 2,000 early next year,'' said Kim.
However, James Soh, an analyst of Korea Investment & Securities, said that other variables remain ahead that could correct the market going forward.
``Whether the market could be included in the FTSE developed world indices, which is expected to be announced Thursday, is one of the influencing issues,'' said Soh.