Share hunger that feeds on scandal
Foreign investors are piling into Korea's stock market. But why? The country seems to have lost its competitive edge, the stock index has plummeted, and the country's corrupt practices have been exposed with the guilty verdicts on two former presidents. Overseas investors, however, are undeterred. They believe profits are there for those who can stomach the roller-coaster ride
On August 3 the share price of Daesung Resources, a company in the normally underperforming mining sector on the Korean Stock Exchange (kse), stood at w171,000 ($209.82) about nine times its low for 1995.
Daesung shares had been climbing furiously between July 23 and August 2, hitting the daily permissible upper limit every single trading day. And just three weeks later, they had slid 35% from their peak. The rush on the shares was prompted by rumours that the government would permit the coal company to turn its mine sites into casinos. By mid-August, though, it became clear that the rumours had been just that. Moreover, analysts began to refer to Daesung as a chakcheonju, literally a "strategy stock" strategy in this case being an imaginative tale spread in order to drive up share prices and hoodwink gullible investors. In other words, Daesung had been the object of an old-fashioned ramp.
The Daesung caper is only the most recent indication that transparency is not one of the Korean stock market's strong points, in spite of highly publicized official promises to rid the market of unsavoury practices.