Post-Election Rally Not Warranted

By Park Hyong-ki

Staff Reporter

Analysts are generally positive that the stock market will keep upward momentum on hopes of economic initiatives by President-elect Lee Myung-bak.

Lee of the Grand National Party promised to put growth before wealth redistribution by easing various regulations governing markets such as real estate and banking.

Such deregulations aimed at creating a market-friendly environment will propel the economy and stimulate investment, while boosting general sentiment on the stock market, analysts noted.

``Lee's growth-oriented drives by deregulation point toward increasing investments, which is what the country needs to advance,'' said Harold Park, research head of Seoul Securities.

Park mentioned that deregulations in the financial industry will certainly boost competition as well, adding that it is the key to further strengthening the market. He said that financial firms such as banks have played safely long enough under policies that guaranteed their core operations.

The analyst stressed that should the new government seek to utilize the financial industry as its next growth engine, it needs to develop policies encouraging firms to adopt a universal banking system.

He expects the stock market to climb into uncharted territory, reaching as high as 2,630 next year on expectations of deregulation moves with stocks such as securities and construction outperforming the broader market.

But analysts agree that the direction of the stock market in the long-term is largely affected by fundamentals and corporate performances, and did not rule out the fact that the market performs in line with global economies.

SK Securities analyst Won Jong-hyuck said president-elect's stimulus measures such as deregulation and privatizing state-run banks and corporations are positive.

But he cited U.S. subprime lending turmoil and China's tightening of its monetary policy as major factors affecting the stock market next year.

``Issues concerning subprime defaults and China's monetary policy remain as variables to Korea as it largely depends on exports to those top destinations for growth,'' said Won.

However, he believes the U.S. is most likely to stem worsening subprime mortgages early next year, and despite China's belt-tightening policy, investors expect China's economy to grow continuously, benefiting Korean exporters. ``The stock market has already taken into account of China's continuous move to tighten its monetary policy,'' he said.

Ted Oh, an analyst of Woori Investment & Securities, also said concerns over micro-risks of subprime lending and inflation are expected to undermine investors sentiment until the first quarter of 2008.

But he projects corporate balance sheets to improve and U.S. subprime lending to abate in the second quarter, helping the stock market rebound.

``After sluggish performance in the first quarter, Seoul stocks will edge back up on improving corporate fundamentals and external conditions,'' said Oh.

He forecast the market to hit as high as 2,450 by mid-next year, and reach 3,000 by 2009-2010, recommending IT, communication and automobile shares.

The analyst is positive about Lee's growth before wealth redistribution policy, but the market needs to wait until the outcome of the general election in April next year, and see whether his economic-driven measures are both politically and publicly favorable and achievable.

Kim Hak-kyun, an analyst of Korea Investment & Securities, doubts the market will be heavily affected by Lee's initiatives as the stock market has always performed in accordance with global economies and fundamentals.

``The stock market is most likely be driven by the effects of subprime lending, China's monetary policy and money market rates rather than the president-elect's deregulation moves,'' said Kim.

He expects Seoul stocks to ``slowly climb'' next year, as global uncertainties lessen going forward.

phk@koreatimes.co.kr