Summit Spurs Stock Re-Rating
By Yoon Ja-young
Staff Reporter
The second inter-Korea summit is expected to lay the ground not only for the establishment of a permanent peace on the peninsula but for further re-rating of the Seoul stock market, analysts said.
They said that Seoul stocks, burdened so long with the so-called ``Korea discount'' due to geopolitical concerns, will get a fresh boost as President Roh Moo-hyun entered North Korea for a summit with the North's leader Kim Jong-il.
The main index KOSPI closed above 2,000 points again Tuesday as it closed at 2,014.09 points, up 51.42 points, or 2.62 percent, on the balmy news from north on top of the bullish New York bourse.
Most analysts agree that the summit will have a positive effect on the bourse in the long term. They advise investors to pay attention to stocks that have to do with social overhead capital (SOC) projects in North Korea.
Samsung Securities said the summit will be a great boon for the bourse in the long run. ``The political events between the two countries haven't affected stock prices much. Opinions diverge regarding its effect in the short term, but it would greatly contribute to the revaluation of local stock market in the end,'' said Ahn Tae-kang, an analyst at Samsung Securities.
The world was surprised when the two countries announced the summit plan in 2000 April, and the whole nation watched the historic scene on TV when former President Kim Dae-jung was greeted by North Korean leader Kim Jong-il in Pyongyang two months later.
The stock market soared after each of these events, yet change was not always predictable. When North Korea conducted nuclear tests in 2006, on the contrary, stocks continued to rise as foreign investors sought buying shares on cheap prices.
It is different this time, according to analysts. ``It would be a remarkable bullish factor once the two come out with a concrete plan on economic cooperation and SOC,'' said Lee Seon-yeob, an analyst at Goodmorning Shinhan Securities. It would be only symbolic if without concrete agreements, he feared, but it would still be meaningful, according to Lee.
``The two can talk about setting up special economic zones, which can give rising momentum to North Korea related stocks and improve overall investor sentiment,'' Kiwoom Securities said in a report.
Samsung Securities' Ahn cited decreasing geopolitical risk and consequent reevaluation of stocks, the economic cooperation between the two and decreasing cost of unification after North Korea's adoption of a market system and opening of the market as meanings of the summit. ``The growing possibility of the sovereign credit ratings raise and Seoul index's incorporation into developed world indices and the risk premium decrease are some of the positive effects,'' he said.
He advised investors to concentrate on large cap blue chips that will benefit from infra projects in North Korea. Hyundai Engineering & Construction, POSCO, Hyundai Merchant Marine, Hyundai Elevator, KEPCO, and Hyosung were among his top picks.
Goodmorning Shinhan's Lee said cited SOC related businesses, including construction and power transmission as the ones to benefit from the summit. ``In the first summit, all stocks related with North Korea skyrocketed, but not this time. Investors are taking out the ones that will have a visible benefit. Investors seem to know how to make a good investment,'' Lee said.