Experts raise red flag for KOSPI advance

The KOSPI, which soared nearly 30 percent in just a month may soon enter a correction phase, with some predicting a fall to near 1,200 points, experts warned yesterday.

The country`s benchmark stock index pulled off an impressive rally despite extended global economic uncertainties and heightened diplomatic tension with North Korea. Many analysts believe that the recent bull market was driven by increased liquidity in the market and optimism about the economic recovery.

Yesterday, the KOSPI closed at 1,336.39 points, up 0.56 percent or 7.39 points from the previous session. Tech-loaded Kosdaq rose 1.68 percent, or 8.14 points, to 491.94.

"It is true that the outlook for the Korean economy and corporate earnings is improving. But the problem is that the pace of improvement in the stock market was faster than that of the economy or corporate earnings," said Lee Do-han, an analyst at Tong Yang Securities Co.

Daishin Securities Co. said in a report yesterday that the local stock market is near a state of "being overheated," citing its price-earnings ratio.

Korean stocks` PER, the most common measure of how expensive a stock is, stands at around 12.8, according to the brokerage, approaching 13.4 reported amid a stock market boom in 2007. Daily turnover of both the main and secondary bourses hovers around 11 to 12 trillion won, nearing the level seen in mid-2007.

"Foreign and institutional investors may feel uneasy buying stocks at this level of PER," Yang Hae-jung of Daishin Securities said.

Foreigners bought a net 2.8 trillion won worth of local shares from the start of this month till Friday, but institutional investors sold a net 3.7 trillion won worth of shares.

Kim Se-jung of Shinyoung Securities predicts the stock market to experience some instability for the time being, as institutions have little room to buy.

"Because individuals are pulling out of equity funds, institutions have little capacity to purchase stocks, which is a destabilizing factor," he said.

Kim Jung-hyun of Goodmorning Shinhan Securities Co. warned that the index may retreat to low-1,200 points, as institutions sell and foreigners reduce buying.

"A massive plunge as seen last year is unlikely, because the market is still supported by liquidity while improving economic conditions could lead to better corporate earnings. A correction of between 5 to 10 percent decline is more likely," said Kang Hyun-chul of Woori Investment and Securities Co.

By Lee Sun-young



(milaya@heraldm.com)