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November 30, 2000

From Our Correspondent: Hirohito and the War
A conversation with biographer Herbert Bix

From Our Correspondent: A Rough Road Ahead
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From Our Correspondent: Making Enemies
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MARCH 3, 2000 VOL. 26 NO. 8

Feeling Young At Heart
Korea's Kosdaq exchange is so frisky
By LAXMI NAKARMI Seoul

Kim Jin Soon is a 70-year-old grandmother who spends four hours each day at a Seoul brokerage watching the red and green readouts of an electronic stock scoreboard. She is as enthusiastic as anyone about the Internet revolution and recent strong stock market gains by telecommunications companies. "Somebody told me to buy telecom and Internet stocks and I asked my broker to buy whatever he could find," she says. Until recently, Kim had never heard of the Internet. And her home phone is of the analog variety, almost an antique. It doesn't matter as long as you're a player in the soaring Kosdaq stock exchange, South Korea's tech-heavy, over-the-counter bourse that opened in 1996. "The investment return is pretty good," she says of her picks. "I made a 100% gain in the last four months."

Although it's impossible to predict when the current run will end, the gains have been pretty impressive so far. The Kosdaq Index is up more than 400% in the last 12 months. The market slumped for much of January, but it is back testing all-time highs this month, having recovered about 45% in the last four weeks. Such increases have attracted the attention of Kim and thousands of Koreans like her. The number of Kosdaq shareholders grew 610% last year while the overall market capitalization, fueled by both new listings and the strong rally, increased an astonishing 13-fold. Daily trading volume now routinely surpasses that of the older, bigger Korea Stock Exchange.

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A coincidence of events, some unique to South Korea but others found around the world, is fueling the rally: a strong economic recovery, burgeoning investor enthusiasm for anything that smacks of technology, more and more Internet stocks to trade, and a gambling mentality. Will it last? Hwang Young Key, CEO of Samsung Investment and Trust, is skeptical: "I believe that some of the stocks are overvalued. I have asked our analysts to study scenarios for a possible collapse." But others believe the market has room to grow. "I would not be out of it," says Park Hyun Joo, the chief investment officer of a Seoul fund management firm. He is allocating 15% of the $2.7 billion his company controls for Kosdaq.

Another boost for Kosdaq: South Korea has one of the highest levels of online stock trading in the world. Half of all shares traded on Kosdaq come from Internet orders, a proportion that far outstrips even the U.S. Foreign money is goosing the Kosdaq too, with America a prime source. That surge has boosted stock prices and also pushed up the Korean won, which not long ago hit 27-month highs. The currency's strength, in fact, worries some Koreans, who fear a powerful won will decrease the competitiveness of exports and damage corporate earnings.

The widening popularity of day-trading is also a concern, because it has greatly increased the volatility of the exchange. The inexperience of some players might also make the exchange susceptible to a damaging sell-off. Kang Jung Ho, CEO of the second board, says that many social clubs formed by Korean housewives have now been converted into "Kosdaq clubs." Young women with knowledge of the Internet and telecommunications are among the most aggressive players. Park Hyun Soo is one. "I think I will stay in the market, choosing good value Internet companies," says the secretary in Seoul. "I have made 30 times [my original investment] by buying start-ups."

Kang says the exchange is having trouble keeping up with the increases in volume: "In April last year, we expanded our capacity by 50 times, and now it is insufficient. There have been transaction delays and investor complaints are increasing." He says Kosdaq plans to boost capacity again in the next three months. Also being taxed by all the interest is a new system of rules and regulations designed to improve the transparency of companies for investors. Fortunately, rising prices tend to keep a lid on complaints. It all makes for a bourse any grandmother could love.


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