Seoul Composite Index Essay

The Seoul Composite Index—the Korea Composite Stock Price Index (KOSPI)—is a weighted index that reflects the price of stock on the Seoul Stock Exchange in South Korea’s capital. The Korea Stock Exchange (KSE) was established on March 3, 1956, to help raise capital for companies, three years after the end of the Korean War. At that time, it was a small operation. After six years, on April 1, 1962, it was reorganized into a joint-stock corporation, and on May 8, 1963, it became a government-run, nonprofit corporation. The current Korea Exchange was created in January 2005 through a merger of the KSE, the Korea Futures Exchange, and the Korean Securities Dealers Automated Quotations (KOSDAQ). In late 2005, the Korea Exchange ranked 15th in terms of market capitalization, but ninth in terms of trading value, among the exchanges that make up the World Exchange Federation.

Although local businesses had used the KSE to raise funds, and local investors had used the South Korean stocks, it was not until January 1, 1972, that the KSE started publishing its composite stock price index for the first time. In 1975 a continuous trading system replaced the call trading system, and on January 4, 1983, the KOSPI was launched with the initial value of 100. The launching of a computerized order routing system on February 1, 1983, helped the value of KOSPI to be published more easily. The KSE Automated Trading System launched on March 3, 1988— two days after the KSE was privatized and incorporated into a membership organization—allowed KOSPI to be published in real time.

During the 1980s, there was widespread international interest in the stocks on the exchange, partly because of the performance of the South Korean economy at the time and partly because of the increased exposure to the country in the lead-up to the 1988 Seoul Olympics. While some pundits expected the South Korean economy to boom as had the Japanese economy in the 1960s and 1970s, some foreign investors wanted to balance their investments and a group of them established the Korea Fund in August 1984, whereby money was invested in a range of shares, with good results—the shares in the fund being listed on the New York Stock Exchange. However, industrial problems in South Korea regularly led to changes in the stock prices, and the situation was often made worse by tensions along the South Korea–North Korea border. There were also queries over corruption with the chief of the stock market watchdog being arrested in June 1996 for allowing companies he favored to obtain a quick listing on the KSE. In December 1997 there were also problems when Dongsuh Securities, the fourth-largest brokerage company in South Korea, collapsed, causing the stock exchange index to reflect the lowest prices in 11 years, the market having already been battered by the effects of the Asian economic crisis in July 1997. Indeed, on June 15, 1994, the KOSPI 200 started to be published by the KSE, reflecting the prices of the major 200 companies whose stock was listed by the KSE—again, starting from a base level of 100.

To try to increase investor confidence, in June 1998 the South Korean government designated 55 companies as unviable and sought to implement regulatory changes. In September 1999 the government sought to try to reduce the power of the major industrial conglomerates—in particular the 10 largest chaebols— which it felt had too much influence on the stock market and the composite index. During this period, the Financial Supervisory Commission spent much of its time chasing leads to prevent fraudulent trade in shares. In May 2000 the workers on the KSE went on strike when plans were introduced to end their lunch hour, which would force brokers to eat while trading shares—some 70 percent of all investors were individuals who dealt with specific brokers.

Soon afterward, a number of other KSE indices were published including the KOSDAQ Star Index on January 26, 2004 (with the values on January 2, 2003, equaling 1,000 points), and after the establishment of the Korea Exchange on January 27, 2005, the KRX 100 was published from October 28 of that year.

Bibliography:

  1. Don Kirk, “Korean Stocks Feel Pinch From Troubles in US,” New York Times (October 9, 2002);
  2. Korea Exchange, eng.krx.co.kr (cited March 2009);
  3. Samuel Len, “Korean Conglomerates Remain Entrenched,” New York Times (September 21, 1999);
  4. Samuel Len, “Korean Traders Want Their Lunch and Time to Eat It, Too,” New York Times (May 20, 2000);
  5. James Sterngold, “Korea Boils as Economy Cools,” New York Times (May 11, 1990);
  6. Stephanie Strom, “Korea Puts 55 Companies on ‘Death List,’” New York Times (June 19, 1998);
  7. Anise C. Wallace, “A Stock Fund Bets on ‘the Next Japan,’” New York Times (September 8, 1985).

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