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S Korean stock market seeks foreign support

SEOUL: Hopes for a liquidity-driven rally should lend support to the Korean stock market this week but persistent foreign sales continue to check its upside potential, analysts and brokers said.

"The market still lacks a clear direction but investors' sentiment remains relatively favourable, buoyed mainly by low interest rates," said Kim Young-il, a senior fund manager at Hyundai Investment Trust Management Co.

Local bond yields have been easing, aided by the smaller-than-expected impact from the increased ceiling in redemptions for individual and corporate investors in bond funds exposed to the troubled Daewoo Group.

Financial stocks, which are the market's underperformers, and small-capitalisation stocks will likely fare well while blue chips such as Samsung Electronics Co are expected to be sluggish, Kim said.

South Korea's Korea Composite Stock Price Index closed up 6.63 points or 0.70 percent at 950.22 on Thursday, the last trading day before lunar new year holidays. It rose 0.91 percent or 8.55 points for the week.

Analysts expect the KOSPI to move in a range between 920 and 980 points this week.

Brokers remained optimistic about the over-the-counter Kosdaq market which they said would be inspired by Friday's gains in the technology-laced Nasdaq index which rose 33.16 points to a record high of 4,244.14.

There have been no signs of panicky redemptions at investment trusts since they began on Wednesday redeeming 95 percent of investment by their clients in funds linked to bonds issued by Daewoo Group companies.

The Financial Supervisory Commission said such redemptions by individual and corporate investors totalled 2.0 trillion won on Wednesday, or 7.2 percent of the outstanding amount of the Daewoo-linked funds.

Analysts said investors hoped that investment trusts, the main players in the local equity market as well as in the bond market, will expand their investment if the redemptions required less liquidity than expected.

"Those who believe in the market's rally are seen expanding their holdings, absorbing selling pressure whenever the index approaches resistance at near 950 points," said Yoon Sam-wi, a strategist at LG Securities.

Analysts said, however, persistent foreign sales could continue to weigh on the market. Chipmaker Samsung Electronics, the bluest of blue chips, took a hit last week on foreign sales, shedding 11.9 percent over the week.

Foreign investors have been selling blue chips amid uncertainty over immediate market trends and to take profits.

Analysts said foreign sales could continue until the expiry of index options contracts on February 10. But if foreign investors turned net buyers, the market could see a surge as domestic investors would keenly join in.

"Domestic investors will interpret a turn of foreign investors as a sign that a rally is coming up in the market," LG's Yoon said.-Reuters