Stock market unlikely to rebound in 2nd half
The Korean stock market (KOSPI) is unlikely to bounce back in the second half due to the deepening eurozone debt crisis and the sluggish recovery in the world’s two biggest economies, the U.S. and China, experts said Friday.
The KOSPI underwent a roller coaster ride this week with the benchmark index showing ups and downs on news regarding the U.S. and Europe’s stimulus plans. Now the outlook remains murkier as their plans failed to convince global investors.
Korean stocks dropped 1.11 percent Friday after the European Central Bank (ECB) failed to meet market expectations that it would buy bonds issued by Spain and Italy ― the KOSPI lost 20.72 points to fall to 1,848.68.
This was a big setback from a sharp rebound early last week when it enjoyed rallies as ECB chief Mario Draghi said the central bank of the eurozone will “do whatever it takes” to keep the single currency bloc intact and help troubled members such as Spain, Italy and Greece.
However, the bounce did not last long as he did not present any concrete solutions in the central bank’s meeting this week. Investors expected the bank may buy bonds from the troubled countries, but it failed to do so facing opposition from Germany, the biggest shareholder of the lender.
Stagnant economic growth in China and the U.S., two major trade partners of Korea, also makes the export-driven country’s economy more volatile.
Analysts agree that Seoul’s main bourse may not rebound in the near future, but say there are some stocks which can endure the tough time.
“It will take considerable time for the eurozone fiscal crisis to get fully resolved and to see a visible economic recovery in the G2. This means that investors will have to wait longer to see stock markets rebound,” said Lee Kook-hwan, an analyst from Hanwha Securities in a report.
Experts say that the bottom line for the KOSPI will be between 1,750 and 1,770 as that’s where the price-to-book value ratio (PBR) is close to 1. PBR 1 means that the whole market cap is equal to the combined book values of listed companies.
Lee said investors need to pay attention to companies that have a diversified revenue portfolio as they tend to weather economic crises better by lowering risks through various revenue sources.
The Hanwha analyst said firms having a solid leading position in the market are also good choices during an economic downturn because they can avoid cutthroat competition and keep stable margins.
In that sense, Lee recommends investors buy stocks of Hyundai Motors and Kia Motor, whose combined market share tops 60 percent here. He also pointed out KEPCO, KT&G, Jinro-Hite and Poongsan, which have dominated market shares in their industries.
Park Seong-hun, an analyst from Woori Investment & Securities, says investors need to watch out for changes in the global economy as there are some signals of recovery. He said the eurozone debt crisis can be overcome as the 17 member countries have shown strong solidarity in previous crises.
“When Italy’s sovereign bonds yield spiked to 7.9 percent in November, many people thought the eurozone would collapse. However, it became a turning point as European countries overcame it thanks to help from major economies,” said Park in a report.
Park also said that Chinese economy is showing signs of a recovery referring to HSBC’s manufacturers’ sentiment index which marked 49.5 in July, the highest in five months. He said abundant liquidity in the world’s second-largest economy boosted by the government can increase investment in fixed assets, which can lead to an improvement in the manufacturing industry.