SOUTH KOREA - South Korea has asserted itself as king of the equity derivatives hill with its strengthening economy, a soaring stock market and a population increasingly keen on new investment products.
The country is now the world’s busiest market, overtaking the US on turnover volumes, for these structured products only a few years after stock index derivative products were introduced to Asia’s fourth largest economy. This comes on the back of a stock market that repeatedly hit all-time highs in 2005.
“While the world has been focusing on the strong growth in China and India, 2005 has turned out to be the year of Korea,” said Andy Xie, chief Asia-Pacific economist at Morgan Stanley.
“Its stock market and currency have been the best performing in Asia. Its economy appears to be transitioning successfully from ‘developing’ to ‘developed’ – a change that, outside the west, only Japan has achieved to date.”
Korea’s benchmark Kospi share price index rose by over 50% in 2005, while the Korean won appreciated by another 10% against the dollar on top of 2004’s double-digit gains. Within this boom, Korean stock index futures and options trading has exploded – turnover increased by 71% to US$12trn in the third quarter of 2005.
But the sudden strong performance of the derivatives markets is prompting concern that a bubble may be forming. However, Lee Seon-kyu, a director at Woori Securities in Seoul remained upbeat. “Everyone is winning, so unless someone starts to lose, I think this bullishness will continue [in 2006],” he said.
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