Stock market frenzy
It has been dizzying watching stocks shoot up day after day. The KOSPI, Korea's benchmark index, which broke through the 1,500 mark on April 9, has gained more than 400 points during the past three months.
The market rally has been strong enough to leave the most bullish analysts, as well as uninitiated individuals, dumbstruck with awe. It has defied conventional analyses. Even the latest increase in the call rate failed to put the brakes on a runaway market.
Primarily responsible for the rally has been ample liquidity, which has rushed into the stock market. One indication has been a sharp increase in customers' deposits with brokerage companies, which have surpassed the 15 trillion won mark.
Optimism has driven out pessimism. Many analysts claim the current bull market is nothing like the 1999 information technology bubble. They also point out that, unlike in the past, individual investors tend to make decisions based on the performances of corporations, many of which have strived to become lean and mean since the Asian financial crisis.
Nonetheless, individual investors will have to remind themselves constantly that they are investing in stocks at their own risk. One of the axioms most frequently cited during such heydays is that high mountains have deep valleys.
The last thing individual investors are advised to do is expose themselves to an untenable level of risk. Excessive borrowing to buy stocks is one such example. Past market crashes have shown how risky such an investment pattern can be. Another way to reduce risk is to invest in equity funds.
It would be wrong for the financial authorities to rush to dampen the market. They would be equally ill-advised to let the stock market run its course if and when it is deemed overheated. In this regard, the central bank did well to suggest it might raise the call rate again when it raised it by 25 base points last week.
