Seoul bourse unlikely to rebound in 2nd half

By Jhoo Dong-chan

The Seoul stock markets are unlikely to see a meaningful rebound in the second half of this year due to lingering uncertainties both at home and abroad, such as weakening economic fundamentals and the ongoing trade feud between the U.S. and China.

This downbeat outlook may come as disappointment amid the Seoul bourse's handsome gains over the past weeks.

Most analysts forecast that despite bullish runs in U.S. stock markets, the benchmark KOSPI will walk sideways for the rest of the year, moving along a trading range between 2,300 and 2,450.

They say Seoul stocks have seemingly hit the bottom given eased concerns over the U.S.-China confrontation but are unlikely to jump anytime soon due to a variety of downside risks, such as worsening economic data and sluggish investor sentiment.

The KOSPI closed at 2,303.12 points on Tuesday, up 3.82 points, or 0.17 percent, from the previous session.

It plunged to the year's low of 2,240.80 points on Aug. 16, but has since risen steadily to the current level. The figure has recently continued on an upward spiral, and even reached above the 2,310-point level during the Tuesday session.

“Expectations are high, but risks are still there. I don't think the KOSPI will land above the 2,400-point level anytime soon unless there are strong signs of economic recovery and firms' sound earnings,” Daishin Securities analyst Lee Kyung-min said.

“There is also an ongoing controversy whether the U.S. economy has passed through its peak. Plus, if the key rate gap between the dollar and Korean won is widened, it could induce an investment departure dealing a severe blow to the nation's brokerages.”

Hana Financial Investment researcher Lee Jae-man gave a more bullish outlook, claiming the lowest level in the remainder of the year will be 2,300 points while the highest could reach 2,600.

“The Federal Reserve is likely to stick to its original plan to raise the policy rate no more than twice this year. Expectations on the strong dollar will be settled at the current level if there's no more rate hikes,” Lee said.

“I believe Seoul stocks have reached their lowest level. Despite gloomy outlooks claiming the nation's top 200 firms will see only 100 trillion won in earnings this year, the KOSPI 200 firms posted a collective 69.8 trillion won net profit in the first half.”

Kwak Hyun-soo, an analyst at Shinhan Investment, agreed with Lee's outlook on the lowest level, but took a cautious approach with the highest level.

“We still need to take a close look at the development of trade negotiations between the U.S. and China, but indexes seem to have hit the bottom,” Kwak said.

“I believe the main KOSPI will recover at 2,450 points by the end of this year.”

Meritz Securities researcher Jung Dai, however, said the recent jump in Korea's stock market is temporary.

“There is a still long way to go to settle the ongoing trade war between the U.S. and China. Their talks do not immediately imply an agreement. Another hurdle is that the Federal Reserve's austerity approach is still ongoing,” she said.

“In order for the main KOSPI to rise above the trading range, the Seoul Bourse should raise its trade volume while firms need to continuously post strong earnings.”

According to the Korea Exchange, retail investors have sold their shares for days. They sold 242.6 billion won worth of shares in the main KOSPI and 106.6 billion won worth of shares in the tech-heavy Kosdaq Monday, a stark contrast to foreign and institutional investors' buying trends.

“I think almost every possible negative factor has already come to the surface so stocks won't plunge back to the 2,200-point level,” futures trader Lee Sang-hoon said.

“However, investor confidence among retail investors has cooled off too much. Without recovering their confidence, it won't ride above the trading range.”