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| An electronic board set up at headquarters of Hana Bank in Seoul shows the benchmark KOSPI's closing price on the first trading day of June. Yonhap |
By Lee Min-hyung
Korean stocks are feared to lose steam and move within a tight range again amid concerns of a prolonged trade deficit, weak private consumption and slow real estate market conditions, analysts said.
The recent performance of the benchmark KOSPI appears satisfactory enough to say that it has gotten back on track for a recovery after falling sharply last year. The main bourse rose to more than 2,500 points from around 2,200 earlier this year. This was driven by a buying spree of local shares by foreign investors ― particularly large-cap semiconductor and tech stocks.
However, it is still too early to say that the momentum will continue throughout the latter half of this year, as the real economy faces lingering downside risks triggered by weakening GDP growth and continued trade deficits.
Korea suffered another trade deficit in May, extending a 15-month losing streak. This was the longest deficit since the 1997-1998 Asian financial crisis. Many households have also shut their wallets to reduce their financial burden from loans amid high interest rates. On top of that, the real estate market is displaying no clear signs of a robust recovery after home prices fell last year.
This increases the overall uncertainty in the local stock market, as retail investors have yet to make a meaningful comeback on the KOSPI due to such lingering uncertainties. According to data from the Korea Exchange, retail investors sold 4.2 trillion won worth of Korean stocks on the main bourse in May, which was offset by foreigners who net-purchased 4.3 trillion won during the same period.
Market analysts advised investors to stay away from any blind optimism over the recent stock rally, which was driven by a foreign capital inflow on only some chip shares.
"Expectations of corporate earnings growth and a possible export recovery are reflected in the recent market rally, but the market may soon reach a peak if the attention on the blue-chip stocks deepens further," Kyobo Securities analyst Kim Hyung-ryul said.
Yang Hye-jung, an analyst at DS Investment & Securities, also concurred on the possibility of the main bourse losing steam for additional growth in the latter half of this year.
"Exports are showing few signs of a recovery and second-quarter corporate earnings are forecast to remain sluggish, so it is hard to clearly say whether the market will be able to bounce back in a sustainable manner," the analyst said.
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