By Lee Hyo-sik
Staff Reporter
Seoul stocks are regaining an upward momentum on the resumption of active foreign buying after a month of sluggish back-and-forth movements. Analysts here say the local bourse will likely head upward on growing expectations that blue chip companies here continue to post strong corporate results for the remainder of the year.
Additionally, improving global economic conditions and the strengthening of the won against the dollar are expected to further boost international investors' appetite for local shares.
With growing inbound foreign investment and the snowballing current account surplus amid the globally weak dollar, the Korean won is likely to gain ground against the greenback and other currencies, making Korea-made goods more expensive in overseas markets.
On Friday, the benchmark KOSPI rose to its highest level in 14 months on the back of strong foreign buying of financial and retail shares. The index jumped 7.02 points, or 0.43 percent, to close at 1,651.7, the highest close since July 1, 2008. Volume was moderate at 502 million shares worth 7.48 trillion won with gainers leading losers 443 to 357. The tech-heavy Kosdaq also rose 3.25 points, or 0.62 percent, to 528.26.
For the past month, the Seoul market remained sluggish, with KOSPI hovering around at between late 1,500 and early 1,600. Many foreign and domestic investors became reluctant to increase their equity holdings after a steep market rally from April through July. But on Thursday, the KOSPI surged 36.91 points, or 2.3 percent, to 1,644.68 on renewed foreign buying of local shares.
``Overnight rallies in the U.S. and Europe this week have improved investor sentiment here, sending the KOSPI to a year-high level. Investors expect improving economic conditions at home and abroad to benefit electronics makers and other international players, making listed shares here attractive. Additionally, more foreigners are buying local stocks in a bid to realize currency gains on the strengthening Korean won amid the globally weak dollar,'' Woori Investment & Securities analyst Lawrence Kim said.
Kim projected the KOSPI will rise to as high as 1,710 this month and then head downward for the remainder of the year. ``The market will maintain an upward momentum toward the year's end and the next year. But the pace of growth will moderate, with the government and the Bank of Korea implementing a range of ``exit strategies'' to absorb liquidity from the market. Also, the central bank's expected rate hike early next year will increase costs associated with equity investment, dampening the investor sentiment.''
With foreigners converting dollars into won to buy Korean stocks and the nation's soaring current account surplus, the local currency has been strengthening against the greenback over the past month.
On Friday, the won closed at 1,221.8 won against the dollar, strengthening from 1224.5 won the previous day, on the back of the globally weak dollar sentiment and foreigners' buying of Seoul stocks. It rose for the seventh consecutive trading session.
Woori Investment & Securities economist June Park said with the easing of the global financial market turmoil, the Korean won has gained ground since April.
``Additionally, active foreign buying of local shares and the nation's improving trade balance further boosted the won's value. But toward the year's end, the pace of the won's rise will moderate on the declining current account surplus and inflow of foreign equity investment.''
Park projected the won-dollar rate will reach 1,180 won in the fourth quarter, adding the government will likely intervene in the currency market to curb the won's strength if the rate falls below 1,200 won.
``Former Strategy and Finance Minister Kang Man-soo, an advocate of the weak won policy to boost exports, became a special economic advisor for President Lee Myung-bak. He will likely play a greater role in the economic policy-making process, meaning that the government will take action against the won's rise to maintain the price competitiveness of domestic products on the overseas markets,'' he said.