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Korea's Double Dip
The Kospi and Kosdaq plunge. Scott Blanchard on how low they'll go
By MAUREEN TKACIK
February 16, 2000
Web posted at 5 a.m. Hong Kong time, 4 p.m. EST
Click here for current data on world markets from CNNfn
It's not all that often, dear reader(s), that you shower Market Q&A with praise. But Michael Sheahan, who says he hails from the "tri-state" area (presumably New York, New Jersey and Connecticut), wrote in to say that our coverage of Pacific Century CyberWorks had been (shucks!) just "terrific." Well, Mr. Sheahan, you are in luck: PCCW isn't likely to see a "coverage" shortage for quite some time, particularly in light of its possible purchase of part of Cable and Wireless HKT.
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Q: But first, some bullet points. Hong Kong tanked. Korea tanked too, with the Kospi falling 3.4% -- its fourth consecutive day of losses -- and the Kosdaq plunging 8.1%. Chalk it up to an orgy of profit-taking. Daewoo might be a dead issue, but oil prices and elections are not. I spoke with Scott Blanchard, head of sales trading at ABN Amro. Scott, help me make sense of this.
A: We should see some relief from the sell-off on the back of corporate yields having fallen back below the 10% level, as is often the case in Korea. The focus, however, turns to negative, trade-related factors. In this case, that's the falling yen versus the rising won and the price of oil. Until we see yields break below the 9.82% level, that kind of focus is going to continue. But we should see yields break that level fairly soon. As is all too often the case, record volume in Korea proved a harbinger of doom. We saw a rare double dip on yesterday's U.S. $8 billion in turnover (Kospi and Kosdaq combined).
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Q: Right. The consensus seems to be that Korea's a single-dip kinda market these days as foreigners trade in their old-school Kospi stocks for the newer, sexier, tech shares on the Kosdaq. The Kospi's whisper level is running about 800.
A: I think the Kospi should see support at around 846, the Kosdaq 231. In the case of the Kosdaq, you've gotta close your eyes and buy. Valuations are significantly discounted to their overseas counterparts.
Q: Like Pacific Century CyberWorks? Give me your take on its discussions with HKT.
A: PCCW is still the company to buy. This is a great deal for PCCW as it gives them some established content and high-speed final mile access. Given the fact that PCCW has achieved a U.S. $28 billion market cap with almost no assets, I have to think that owning a chunk of HKT would add another U.S. $10-15 billion to its market cap. I still believe that the way to play this deal is through PCCW. At these levels, even with the best management in the world, HKT is truly overvalued versus its global peers. The stock will see selling once the terms of the deal are made public, as I am fairly certain that Cable and Wireless of Britain (HKT's parent) will sell at a deep discount to the current market price.
Be it overvalued tech stocks, high-profile mergers or corruption scandals, the region's stock markets can go on wild rides. Join the discussion here
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