Lee Min-hyung joined The Korea Times in 2014 and has worked as a journalist mainly in Korea’s finance, tech and automotive industry. He specializes in content creation, breaking news and in-depth analysis currently on transportation and mobility. You can reach him via mhlee@koreatimes.co.kr.
Stock market to see structural change
Top-ranking officials from the nation's securities industry celebrate the historic rally of the benchmark KOSPI at a Seoul office of the Korea Exchange, Thursday. The main bourse closed at a new high of 3,031.68 points, up 63.47 from a day ago. This is the first time that the figure surpassed the 3,000-mark in terms of the closing price. Yonhap
By Lee Min-hyung
By Lee Min-hyung
Korea's stock market is experiencing structural change on the back of aggressive and gradual capital inflow from retail investors.
Few expected the benchmark KOSPI to top the historic 3,000-mark after it nosedived to around the 1,400-point level in March last year. The unprecedentedly strong rally has drawn increasing attention from foreign and institutional investors.
Even if there stands a chance for the market to face a period of correction, the general view is that the KOSPI will continue to report solid performance driven by global investors' preference on riskier assets on hopes for the U.S. government's swift execution of stimulus packages following President-elect Joe Biden's upcoming inauguration.
The ongoing rally of the main bourse will also continue to be backed up by retail investors' buying spree of major blue-chip stocks ― such as Samsung Electronics and LG Chem.
The unceasing COVID-19 pandemic raises the possibility for central banks from major economies to keep their near-zero interest rate stance throughout 2021. The Bank of Korea (BOK) and the U.S. Federal Reserve are no exception by cutting down their benchmark rates to the zero-percent range following the pandemic spread last year.
This will keep pushing a growing number of people to turn their eyes to stock investment, often purchased with borrowed funds, particularly in emerging markets with growth potential.
“The KOSPI will continue its rally at least until the first quarter of 2021, and it will likely face a minor readjustment sometime around March,” said Hwang Sei-woon, an economist at the Korea Capital Market Institute.
The economist, however, remained optimistic that the bourse will continue to report stable performance in the case that COVID-19 vaccines become widely available in a swift manner and any mutated strains of the virus do not spread.
“The key lies in the possible panic from the spread of the new mutant variant of the coronavirus,” he said. “This is the worst-case scenario for the Korean stock market. This will drive a number of companies which have for the past year managed to survive the pandemic shock into a corner.”
With Biden hinting at rekindling the economic power struggle against China, the possible resumption of the U.S.-China trade war will also come as a serious burden to the Korean economy.
The external political uncertainty has been a major headache for many Korean conglomerates for the past few years, as they rely heavily on exports to China. The trade feud between the world's two largest economies has shown signs of subsiding throughout 2020 amid the global virus shock.
“If the two countries intensify their trade disputes once again even after Biden takes power, this will pose a serious challenge to local stock markets as well as the global economy,” the economist said.
Investors are also paying attention to the planned resumption of stock short-selling on March 16. The Financial Services Commission (FSC) blocked investors from short-selling stocks from mid-March when the stock market plunged amid the pandemic shock. The temporary decision will cease to be effective after March 15.
“My view is the resumption of short-selling will cast a limited impact on the stock market which will likely undergo an adjustment period around that time,” Hwang said. “If the adjustment comes earlier than the planned short-selling resumption, authorities will struggle to stop the temporary ban. Now is the best time for financial watchdogs to resume short-selling, as the KOSPI is more than bullish.”
The KOSPI closed Thursday at 3,031.68, up 63.47 points from the previous trading day and a new all-time high.