South Korea Market Eases Ahead Of Key Rate Vote

[Edison Chen]

Foreign investors chasing rising dividends helped boost South Korea's benchmark Kospi index to a three-year high at the end of July, as the government launched measures aimed at freeing up cash locked in corporate battle chests.

The Kospi is up only 1.4% year to date and has climbed 8.2% from a February low. It ended Tuesday 1.7% below its July 31 high.

That high came as Korea's government voted to trim taxes for companies choosing to return cash to shareholders and to use reserves to raise workers' wages. Regulators also relaxed limits on mortgage loans to bolster the stalled real estate markets.

A rising number of economists and analysts say Korea is fighting to thwart a slide into Japan-style deflation. GDP growth slowed to 0.6%, down from 0.9%, in the quarter ended in June. South Korean President Park Geun-hye is following China's lead, attempting to spark the domestic economy in order to become less reliant on exports. But private spending has contracted for two straight quarters. And a rising won has tamped down export demand.

Analysts widely expect the Bank of Korea to lower interest rates at its meeting Thursday. But there is also concern that lower rates would push the country's consumer debt — already among the heaviest in the world at 1.6 times annual disposable income — into increasingly dangerous territory.

South Korea's market regulator, the Financial Services Commission, this week said it would expand the trading range stocks are allowed to rise or fall in a single session. The gradual expansion will push limits from 15% to 30%. The limit has not been changed since 1998, when it was raised to 15% from 12% as the Asian currency crisis rocked global markets.

Among South Korean stocks traded as American Depositary Shares on U.S. markets, the massive Korea Electric Power (NYSE:KEP) gapped up to clear a three-month cup base as Korea's market stroked to new highs in late July.

SK Telecom (NYSE:SKM) and banker Woori Financial Holdings (NYSE:WF) also jumped to new highs in recent weeks.

Among exchange-traded funds, Horizons Korea Kospi 200 (ARCA:HKOR) is up 5.6% since its inception in March. The Direxion Daily South Korea Bull 3X (ARCA:KORU), triple exposed to the MSCI Korea Index, is up 56% from a February low.

South Korea Market Eases Ahead Of Key Rate Vote - Investors.com