SEOUL, Sept. 11 (Korea Bizwire) – When an investor asks a researcher at a brokerage firm about market conditions right after the opening of the Korean stock market, the researcher usually replies, “The market direction will be clearer after 10:30 (the time when China’s stock market opens in Korea).”
This phenomenon shows that the Chinese stock market influences the market direction of the Korean stock market more than ever before. In the past, Korea’s stock market was led by stock markets in the U.S. and Europe.
According to stock market observers, as of August, the correlation coefficient between the KOSPI and the Shanghai Composite Index (SCI) went up to 0.59 from 0.10 in May. It was even –0.16 earlier this year. During the same period, the correlation coefficients between the KOSPI and the S&P500 and the KOSPI and the Dow Jones were 0.43 and 0.34 respectively.
In reality, the local stock market is deeply influenced by the SCI. On August 24, the KOSPI was steady at 1,860 points, but it suddenly nosedived below the 1,800 level after the opening of the Chinese stock market, which plummeted.
Meanwhile, on September 2, the KOSPI began by falling under 1,900 points, but rallied to hold at the 1,910 level after the Chinese stock market rebounded thanks to the Chinese government’s announcement of stimulus policy.
As the Chinese economy rises, investors judge the stock market by a change in the macroeconomic fundamentals of the Chinese economy and its financial markets, which make the Korean stock market interlocked with the Chinese market.
An analyst at Samsung Securities said, “As the global stock market closely watches the Chinese market, foreign investors see the slump in China having a negative effect on Korea and Taiwan, who trade significantly with China.”
China has become the largest export market for Korea, surpassing the U.S. in 2003, and one fourth of Korea’s exports head to China.
However, some analysts expect that such a heavy dependence of the Korean stock market on China will ease soon, as the steep market declines in China stabilize.
By John Choi (firstname.lastname@example.org)