Tuesday, August 12th, 2014
SEOUL, KOREA - As overseas geopolitical risks mount, the domestic stock markets are also undergoing a period of adjustment.
Even though there are positive factors supporting the KOSPI market such as the government's stimulus package and a rebound of the Chinese economy, market watchers said by-far the most important factor to consider this week will be the upcoming announcement by the central bank's Monetary Policy Committee scheduled on August 14 whether it would cut the benchmark rate, which is widely expected to trigger the stock market's surge.
Still, however, analysts have put out mixed predictions whether there would be a rate cut and by how much. Some said the KOSPI index would rise by 60-70 points, opening up an era of KOSPI 2100 if the rate is cut by 0.25 percentage point this time. Some others suggested a cut by 50 basis points. Lee Kyung-min, Daishin Securities analyst, said, "Even though a 25-basis-point cut is more likely, one can't rule out the possibility of a cut by 50 bp. If the monetary authorities opt for the latter, the effect would be much more visible while aligning the interest rate with those of other emerging markets such as Taiwan."
Park Jong-yeon, Woori Investment & Securities analyst, concurred by saying, "As a 25-basis-point cut is already priced in, market participants will focus their attention on further rate cut possibilities. Instead of reducing the rate by 0.5 percentage point in August, the Monetary Policy Committee may cut by small increments over the rest of the year."
The bond analysis team of KDB Daewoo Securities said, "It is too much to expect a cut by 0.5 percentage point and one must consider other factors such as whether the domestic economy can rebound in the third quarter and whether interest rates in major economies would indeed rise after overcoming external uncertainties."
Kim Ji-na, analyst with IBK Investment & Securities, said, "You can't rule out a possibility of keeping the rate unchanged in August. Even though there will be a rate cut within the year's end, it would be just one-time cut of 0.25 percent.""Given there are four hawkish members among seven Monetary Policy Committee members and just one member registered a dissenting opinion in the previous committee meeting in July, it is unlikely for the monetary authorities move abruptly this time," she added.