5 big variables hover over Seoul bourse

Expectations for a bullish stock market early this year are heightening as the financial restructuring is casting a visible signal. In case of the Korea Development Bank¡¯s underwriting of matured bonds showing signs of insolvency as the government announced, many analysts said, the possibility is high that the Korean bourse will reverse to a sharp upturn.

However, it is still unclear whether or not to carry out the financial restructuring as planned or to implement the financial market stabilization measures effectively. As a result, experts have conflicting views over the course of the Seoul stock market early this year.

Besides, experts cite major variables of the Seoul bourse early this year the U.S. lowering of interest rates early this year, the liberalization of foreign currency exchange, and the implementation of the comprehensive taxation system on financial incomes.

Financial restructuring is biggest variable for Seoul bourse early this year:

There is no differing view that the completion of the financial restructuring before the end of February, if realized as planned, will serve as a momentum for the domestic bourse to bounce back. If financial restructuring is completed, the financial market will stabilize and enterprises¡¯ managerial conditions will improve, providing a foothold for the bourse to enter a bullish trend in earnest.

However, it s a stumbling block that the government¡¯s measures are heavily dependent on the formal logic. Back Jong-Il, head of the financial team of the Hyundai Securities Research Center, pointed out: "Financial restructuring could serve as a favorable factor to boost the stock market on a short-term basis. Without basic measures to settle the inefficiency problems the financial circle faces, however, it will be difficult for the domestic bourse to enter a major bullish trend in earnest."

KDB¡¯s undertaking of corporate bonds is nuclear storm for bourse:

If Korea Development Bank (KDB) undertakes 25 trillion won worth of matured bonds, carrying a speculative risk, as the government announced, it will become a powerful favorable factor for the domestic stock market. In particular, issues of listed companies that suffer financial difficulties but boast good performance, are expected to be emerged as beneficiaries of the measure.

However, it is still uncertain how the government can implement the step because of its heavy burden. And some analysts pointed out that such a step would work as a temporary one just to postpone the burden on corporate insolvencies for some time.

"The KDB¡¯s undertaking of non-performing assets could have an effect to convert corporate bonds to national bonds, but it has a limit, under which it could not reduce interest burden of ailing companies," Oh Hyun-Suk, a senior fellow of Hyundai Securities Co., said." The market¡¯s attention has been focused on the potential bad loans of over 100 trillion won, rather than on the already known insolvencies."

U.S. Federal Reserve Board¡¯s next move has impact:

If the Federal Open Market Committee of the United States announces the lowering of interest rates on Jan. 30, it will present an affirmative impact on the Korean bourse, analysts anticipate.

"Considering the U.S. economy, a 0.5 percentage point cut in the prime interest rate is expected at least, and it will bring about an effect of the technical rebound of the Seoul stock market, which is showing signs of following suit of the U.S. stock market," Kim Hyun-Chul, a researcher at Daewoo Securities Co., said. "However, the effect stemming from the lowering of interest rates would appear after July."

Foreign exchange liberalization has wide effects:

If huge amounts of money, which failed to seek investment places in Korea, are flowing abroad due to the second phase of foreign exchange liberalization, the demand and supply condition of the domestic bourse is expected to worsen.

Owing to the weakening U.S. dollar following the slowing U.S. economy, however, the outflow volume of the U.S. dollar is unlikely to be great, analysts anticipated. Some believe that almost all of the U.S. dollar expected to escape from the domestic market already has flowed abroad after the first phase of foreign exchange liberalization, so the second phase will have little impact on the Korean stock market.

Comprehensive taxation of financial income plays role:

According to the developments of the stock market situation, it could serve as a favorable factor for the domestic bourse. If stock prices rise, money, which escaped from the banking sector, is expected to flow into the stock market.

In the opposite case, however, the escaped money would hide under the institutional financial market, causing many harmful side effects.