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(News Focus) Seoul shares hit record high on foreign buying, robust earnings

2017/05/04 18:09

By Kim Kwang-tae

SEOUL, May 4 (Yonhap) -- South Korean shares on Thursday hit a record high on increased foreign buying and robust corporate earnings in six years.

The benchmark Korea Composite Stock Price Index (KOSPI) rose 21.57 points, or 0.97 percent, to close at 2,241.24 -- the highest level ever posted and easily exceeding 2,228.96 reached on May 2, 2011.

The stock markets received a big boost as foreigners scooped up large-cap stocks such as Samsung Electronics Co., Hyundai Motor Co. and AmorePacific Corp.

Samsung Electronics gained 1.38 percent to end at an all-time high of 2,276,000 won, with Hyundai Motor advancing 0.66 percent to 152,000 won and AmorePacific jumping 8.12 percent to 313,000 won.

Foreigners bought local stocks worth more than 361 billion won (US$318 million) bolstering the main index, though institutions offloaded shares worth over 333 billion won on profit taking.

The KOSPI could test the 2,350 level within this year if companies continue to report strong earnings and the U.S. economy moves to show signs of moving forward.

"We are heading toward a period of great change," said Cho Yong-Jun, head of the research center at Hana Financial Investment Co., referring to investors' reorganization of their assets by investing more in stocks and less in bonds.

Samsung Securities analyst Oh Hyun-seok said continued foreign buying, improved corporate earnings in the first quarter and the steady pace of global economic recovery were the main contributors to the record-high index number.

The U.S. Federal Reserve's recent freeze of its key rate also had a positive impact on the local stock markets, analysts said. A rise in rate by the world's largest economy can lead to an outflow of capital from smaller countries.

Other factors cited for the strong performance are centered on South Korean stocks being "undervalued" despite their strong fundamentals. The KOSPI rose 9.53 percent this year, compared with an average growth of 22.68 percent of indices in 40 major countries. The KOSPI was the 15th best performer out of 40 major indices through May 3 of this year.

The expected price-earnings ratio of South Korean stocks over the next 12 months came to 9.1, compared with an average of 16.3 in advanced countries and 11.9 in emerging countries, according to analysts.

They said the so-called Korea discount of undervaluing local stocks due to their sensitivity to external uncertainties could ease as the KOSPI stabilizes at above 2,200. Once the index stabilizes at above 2,200, they expect it could break the 2,300 level within the year.

But they remained cautious, saying tensions on the Korean peninsula remain a major worry for investors. The 1950-53 Korean War ended with a cease-fire agreement, not a peace treaty, leaving South and North Korea technically at war.

Recently Pyongyang has stepped up its saber rattling tactics and threatened to launch a nuclear attack against its foes.

There are concerns that the reclusive government can conduct another nuclear test or test launch long range missiles that can push the United States to take strong action.