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Seoul stocks seen weak, wary of rates

SEOUL: South Korean stocks are likely to be weak as institutional and individual investors take profits, fearing that an expected U.S. interest rate hike could push local rates higher, equities analysts said.

They said investors, including institutions, were realigning their portfolios and might be considering investing in the South Korean bond market.

"The Seoul (stock) market is expected to be weak as investors are wary about bond yields climbing," said Jang Woo-jin, an analyst at Samsung Securities.

But electronics shares, particularly Samsung Electronics, might fare well.

Analysts said the Korea Composite Stock Price Index (KOSPI) would move between 940 and 960 this week. The KOSPI closed Friday 3.02 points or 0.32 percent lower at 948.03, down 0.06 percent on the week.

It will also watch Wall Street. On Friday, the Dow Jones Industrial Average cruised to a record high of 11,722.98 points, while the technology-laden Nasdaq Composite index closed up 2.71 percent at 4,064.27.

South Korea's three-year corporate bond yields have risen steadily since the beginning of the year and have closed in on double-digit territory on concerns that the central bank may raise the overnight call rate, currently around 4.60 percent, to fight inflation.

Analysts said some investors were growing increasingly worried that local interest rates will rise along with the U.S. rates despite Seoul's intention to maintain single-digit interest rates.

Last Friday, U.S. Federal Reserve Board Chairman Alan Greenspan made clear in a speech in the morning that higher short-term official U.S. interest rates are imminent.

"What Greenspan said was expected and is to a large extent reflected in the market. But it had a psychological impact on some investors in a weak market," said Ken Lee, head of research at Good Morning Securities.

Analysts said electronics shares, which are backed by strong expected earnings in 1999 and 2000, could shine in the gloomy market.

"Investors are in a conservative mood. They are buying stocks with solid earnings," said Paulo Rhee, deputy head of research at HSBC Securities.

Samsung Electronics, one of the world's largest manufacturers of dynamic random access memory chips, or DRAMs, benefited after Intel Corp announced strong fourth quarter earnings last week.

"Samsung's shares are undervalued and Intel's announcement gave an added boost Samsung needed," said Han Ilsuk, a senior analyst at Hyundai Securities.-Reuters