The Seoul stock market in August kept its upward trend in general, coming out of the downward trend, which continued for five months from March this year to July.
The Korea Stock Price index (KOSPI) soared by 56.48 points or 7.68percent during the first 24 days of August, posting the highest increase rate in the world. The sharp rise in stock prices was mainly attributable to two factors. One is foreign investors' active buying of stocks. Following last July, foreign investors continued their active buying with the daily average purchase of over 100 billion won worth of stocks during the first 15 days of August.
Foreign investors' positive attitude maximized their influence on the index and resulted in smooth rebound of stock prices while the trading volume and amount posted the year's lowest level.
The second factor is high expectation about a recovery of the domestic consumption. Under the situation where the actual business sentiment remained at the bottom, it was not easy to create expectation for the recovery of the domestic consumption. However, as various indicators concerning domestic consumption were confirmed to have reached at the bottom, expectation for a technical rebound has been accumulated. Along with this, the trend of retail sales improved, affected by sweltering weather in summer and the fixed standardization of digital broadcasting.
In addition, the unexpected lowering of the call rate, which reflects the government's will to prop up the ailing economy, boosted the expecting psychology of the market. Foreign investors' major targets for the purchase of stocks have been concentrated on domestic consumption-related issues, reflecting such expectation.
Viewing this more essentially, however, key reasons of the rebound were the excessively fallen stock prices and foreign investors' strategy to buy undervalued Korean stocks at a low price. They actively bought stocks on the Korean bourse, one of the most undervalued stock markets in the world, as well as in the Asian-Pacific region, anticipating that it would bring about higher profits than their investment in the Taiwan stock market, a main object for comparing with the Seoul bourse.
Outlook for the Market in September / KOSPI likely to Enter a Correction Phase
The stock market in September may start with a rebound trend, which began in August. However, the possibility is high that stock price fluctuations within a certain scope may dominate the market rather than an additional rise in stock prices.
Because it is difficult to expect an upturn in earnest for even domestic consumption-related stocks, which have led the recent rebound, due to heavy burden on oil price and the uneasy employment market. In particular, the burden on high oil price may dampen the domestic consumption business further actually.
Considering that the gasoline price, which has a direct impact on consumer psychology, has approached the 1,500 won mark per liter, an additional hike in crude oil price will affect the Seoul bourse greatly.
Meanwhile, a rise in prices of domestic consumption-related stocks diluted the merit for purchasing Korean stocks at a low price and reduced foreign investors' purchasing volume, making it difficult for stock prices to go up additionally. Foreigners' buying, which concentrated on the relatively undervalued stock market, seems to move to other markets, seeking newly undervalued stocks.
Accordingly, the upward trend in August is unlikely to continue in the September market. Rather, stocks in the IT sector, which recently attempted a rebound, may shift to a downfall, reflecting the business slump in earnest. Considering these and other factors, the composite stock price index may enter a correction period after reaching a shortterm peak.
However, stock prices seem to have rebounded successfully in August after hitting the bottom, so that the supporting power of stock prices in the 710-720 point range is judged to be greater. From a viewpoint of valuation, a merit of underestimation has been fully reflected. Foreign investors' buying also started from the level in earnest, and a technical supporting line was created at the level.
As a result, the stock market in September appears to enter a correction phase after creating a short-term bottom after the rebound in August. However, the possibility is high that a correction accompanying a slight adjustment may occur rather a drastic correction threatening the previous bottom. Major variables, such as the FOMC meeting in the U.S., are unlikely to serve as a positive one for the stock market. Accordingly, it is needed to have a conservative viewpoint.