US presidential election affecting Korean stock market

I wrote previously about Bush, Kerry, and stocks. The election will not only affect US equities; there are fears and mixed signals concerning the US presidential race in Korea. Cho Hying-Kwon writes that the best thing for the markets would be to move on with either candidate. He cites that stocks generally rise after elections but that a recount similar to Florida 2000 would weigh markets down. A clear winner would help reduce oil prices but negatively both candidates are “expected to keep the dollar weak and strengthen trade pressures on Korea.”

Of course a weaker dollar means a stronger won and that means less competitively priced exports. America is Korea’s second most important trading partner. Since Korea’s economic growth is dependent on exports as domestic demand is weak, and China’s recent rate hike probably means that exports will slow to Korea’s #1 trading partner, Korean exports becoming less competitive in America could mean trouble.

While some analysts think that South Korea’s stock market is becoming more resilient, I did read in today’s Korea Times (but I can’t find the article online) that analysts are expecting stock prices to retreat, possibly testing important barriers around 720 which would be a substantial decline. Another interesting twist is that local investors are said to be more skeptical than foreign investors.

All in all, I’m glad that I’m not in the Korean stock market at the moment. These seem like risky times with many analysts predicting that the indexes will decline. The potential rewards are unlikely to be worth the risk as Korean economic growth is slowing. In the long term, I expect the Korean stock market to do quite well but I expect a better entry point than we have now with the KOSPI index around 835.

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