(News Focus) FTSE promotion a boon for local stock market

By Park Bo-ram
SEOUL, Sept. 20 (Yonhap) -- The South Korean stock market's promotion to
developed status by the global index compiler FTSE Group will help lure more
foreign funds and reduce high volatility, analysts said Sunday.
Starting Monday, local stocks will be tracked by FTSE's index for developed
markets, the top-tiered category in its list of world stock markets. FTSE
upgraded the local stock market from advanced emerging-market status, the second
highest of four levels, after putting the country on a watchlist for a potential
promotion in September 2004.
Analysts say the much-cheered promotion comes as a boon for the local equity
market as it is expected to lure a flood of foreign funds that track advanced
economy shares.
The bourse operator Korea Exchange projected earlier in the month that the
decision would result in a net inflow of US$21.3 billion in foreign investments
over the medium to long haul.
Experts paint a much rosier picture, forecasting as much as $30 billion in
foreign funds, given the larger pools of money tracking advanced stocks compared
with those following emerging markets.
"The promotion is expected to drive up foreign buying and boost the allure of
local shares because South Korean shares are undervalued compared with those of
other developed nation in the group," said Kim Joong-won, an analyst at HMC
Investment Securities.
Experts also agree the change may relieve the relatively high volatility of local
shares as long-term funds seeking stable returns are expected to replace hot
money that follows risky emerging markets with high returns.
"The upgrade is forecast to woo long-term invested stock funds, including foreign
pension funds and global wealth funds, fueling the stability of South Korean
shares," said Seo Yong-hee, an analyst at Meritz Securities.
Being classified as an emerging market, local shares suffered sharp swings from
the U.S.-triggered global financial rout last year as overseas investors fled
risky emerging markets.
"FTSE's decision indicates that the uncertainties and risk factors associated
with emerging markets have disappeared in South Korean markets," Seo said.
South Korea's benchmark Korea Composite Stock Price Index (KOSPI) has jumped
nearly 51 percent so far this year, mainly lifted by powerful foreign buying as
foreign fund managers readjusted portfolios to reflect the FTSE index's change.
Stronger-than-expected corporate earnings by IT and auto exporters and a reviving
global economy were also responsible.
While a majority of analysts expect the South Korean market upgrade will become a
catalyst for stock rallies in the medium to long term, some are voicing concern
that the upward momentum will be short-lived.
"It is highly likely that the FTSE upgrade-led momentum will lose steam soon,"
said Park So-yeon, an analyst at Korea Investment & Securities, adding portfolio
readjustments only take a few days and the recent stock rallies seem to have
already priced in the change.
"In a worst case scenario, the upgrade could even push up stock volatility as it
could prompt outflows of money that follow emerging market stocks," Park says.
pbr@yna.co.kr
(END)