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Kospi at 2,300:A new normal?

May 09,2017
It looks like the Kospi is finally breaking out of its box.

After hitting another record on Monday, the Korean stock market’s main index is now less than 10 points shy of reaching a new plain of 2,300.

The benchmark Kospi closed more than 50 points, or 2.3 percent, higher than Thursday’s 2,241.24, which was itself a nearly six-year record. At the close on Monday, it was at 2,292.76.

This achievement comes earlier than analyst projections. Many didn’t think the Kospi would reach 2,300 until the third quarter. In fact, there were concerns the Kospi’s rally might begin losing steam as foreign investors were offloading shares on rising tensions between Washington and Pyongyang.

Now, the question is whether 2,300 will be a peak or new normal for the Kospi.

Optimists are betting the momentum will continue as various indicators favor a further upward push. Some of those signs are coming from overseas.

“Last week, the global financial market showed a stronger preference for riskier assets,” said Ma Ju-ok, an analyst at Hanwha Investment and Securities.

Investors are breathing a collective sigh of relief as tensions on the Korean Peninsula seem to have plateaued and the French elected centrist Emmanuel Macron as president over conservative Marine Le Pen, who championed France leaving the European Union.

Korea’s own political unrest is ending as citizens here elect a new president today, injecting some new hope in the market. The candidates are promising to boost the domestic economy with business-friendly approaches including the implementation of fourth industrial revolution technology.

Other indicators, including Korea’s double-digit export growth, improved consumer confidence and favorable U.S. job data, have contributed to recent global rallies.

Additionally, performances of Korean companies that turned out better than market expectations have driven the Kospi to new heights.

In fact, in the last six years Korean companies’ net profit has lingered between 70 trillion won and 80 trillion won. But after profits surpassed 100 trillion won last year, expectations of improvement have grown.

But analysts warn that the recent upswing on the Kospi is a result of the performance of IT businesses, particularly Samsung Electronics.

Shares of the Korean smartphone manufacturer have risen for nine trading days to a record of 2,351,000 won ($2,076). Daishin Securities on Monday said Samsung Electronics was responsible for half of the upswing.

“When you look at the Kospi [movement] since April 19, which was its short-term low, the semiconductor shares rose 2.67 percent while Samsung Electronics rose 2.33 percent,” said Lee Kyung-min, analyst at Daishin Securities. “Samsung Electronics accounts for half of Kospi’s growth [since April 19] at 4.81 percent.”

Lee said the market’s bullish rally will continue as long as the momentum among IT shares continues.


BY LEE HO-JEONG [lee.hojeong@joongang.co.kr]