How high can South Korea stocks go?

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The South Korea ( EWY , quote ) Kospi stock exchange has broken through the psychologically important 2,000 barrier at 2,002.77, and is tantalizingly close to its 52 week high of 2,057.28.

[caption id="attachment_75762" align="alignright" width="300" caption="The bulls have the upper hand in Korea right now"] Image courtesy the KRX Exchange: http://eng.krx.co.kr/m9/m9_3/m9_3_2/JHPENG09003_02.jsp [/caption]

Investors appeared to ignore North Korea's successful launching of an intercontinental ballistic missile (ICBM) today, perhaps because foreign buyers -- far from missile range, have been net buyers for 11 consecutive days.

The Kospi index has gained nearly 10% so far this year , notes The Financial Times , and it is being driven by tech stocks -- and Samsung ( SSNLF , quote ) in particular, which has jumped 45% to a record high of 1.5 million won on rampant smartphone sales. The company's market value surpassed $200 billion for the first time last week.

More than a third of the Kospi's point gain occurred in the final minute of trading as futures and options contracts on South Korea equities and stock indexes expired, an event known as "quadruple witching" reports Bloomberg. Kospi trading volumes were 12% higher than the 10-day average.

The Kospi is up 6% in the past month thanks to optimism the improving global economy will boost South Korea exports. The Kospi is trading at 11.1 times estimated profit, the highest level since January 2011.

As the FT notes , b ecause South Korea is a high-beta country, it tends to outperform global markets when the economic cycle turns up.

If the market's growth is to be sustainable, South Korea needs to enhance corporate access to capital markets , the nation's top financial regulator, Financial Services Commission (FSC) Chairman Kim Seok-dong said Thursday.

Kim stressed that small firms need greater access to equity capital markets, suggesting a new stock market for emerging companies be established as soon as possible. The market, tentatively named the Korea New Exchange (KONEX), will be aimed at providing better access to capital markets for startups and growth companies.

A heavily export-led economy, one fairly large potential wrinkle against the South Korean Kospi improving further is the strength of the national currency, the won. Hitting a 15-month high against the dollar on Thursday, Korean exporters' price competitiveness is declining, especially compared to the weakening Japanese yen.

Analysts in Seoul are bullish on the index's ability to break up to the 2,200-2,400 level in 2013, but their optimism is based on the assumption that the global economy will recover in 2013. If the Eurozone flares up again, or the U.S. is unable to negotiate a fiscal cliff deal, it could be a disaster for South Korea.

"The biggest risk for our economic growth is the global economic trend, because Korea is one of the countries most affected by the global economy," Goohoon Kwon, chief Korea strategist at Goldman Sachs said to the Financial Times .



The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.



This article appears in: Investing , International , Stocks

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