Stocks Are So Treacherous, But...

Stock prices are simply unpredictable. They are so wild that investors trying to ride them easily fall down and get badly bruised. The stock market has destroyed the fortunes of so many small investors, and once burned they tend to withdraw from the market, nursing wounded feelings of loss and betrayal.

Chinese stocks' biggest one-day fall in a decade on Tuesday triggered the freefall of global stocks across the board.

A lot of disgusted small investors may be now biting their fingernails, regretting not having resisted the temptation to buy stocks. They may already be looking for chances to throw in the towel.

It's true that volatile markets of the past few years have taken their toll. Disillusioned by the market, people have long switched their hopes to real estate, the single best investment choice. Real estate has always been popular as it is seen as the most valuable asset for most Koreans.

Many individual investors, once burned, do not return to the market. They are more concerned about getting fooled again than missing out on a rally.

Stocks have been a disaster for many small investors. But with the once red-hot housing market showing signs of entering a long hibernation, betting on stocks, whether directly or indirectly, looks increasingly appealing.

Stocks will reach a higher ground, but only after consolidating gains through corrections. Investors must have been greatly disappointed yesterday, but overall the benchmark KOSPI has performed quite well. The market consensus is that the key index will reach a new plateau this year.

Of course, most forecasts by brokers have been more wrong than right, however, the overall mood underlying the market is still positive, which is crucial for sustainable, long-term gains.

The stock market seems to be one of the few bright spots in the gloomy domestic economic picture, and so it's important for policymakers and corporate managers to take steps to attract more fresh retail funds into it.

Many pros agree that Seoul stocks are undervalued. During the three years to 2006, Seoul stocks posted a 60 percent gain, while Chinese and Indian stocks both rose more than 100 percent.

Accordingly, China and India overtook Korea in terms of stock market capitalization. In 2006, the Chinese stock market value topped $900 billion and India's reached $820 billion, higher than Korea's $760 billion, according to the Financial Supervisory Service.

Korea Inc. deserves more than that. Policymakers and regulators should be more serious about building an infrastructure conducive to stock investment and eliminating factors discounting stock prices. The planned introduction of the Capital Market Consolidation Act, designed to dismantle business barriers between banks, and insurance and securities firms, is a step in the right direction.

Attracting retail investors who have turned their back on the market is crucial. Policymakers should lay the ground for these small investors to invest more in stocks and equity funds and hold on to them for a longer time _ Korean investors are notorious for only looking at the short-term.

For their part, corporate managers should be more frank about their balance sheets and strengthen management transparency to regain investor confidence.

People may not have to sell out real estate or tap loans to jump into stocks, but they don't have to remain so negative about them either. There could be more risks in real estate than in investing in stocks at the moment.

If direct investment looks too dangerous, buying equity funds is a good choice. Many equity funds have posted fairly decent returns over the last few years and are likely to outperform fixed-rate instruments.

Risk-taking is a quintessential ingredient for success in investment and business. It often proves to be a lot better than risk-aversion and extreme caution.

The future path of the economy is often factored into stock prices in advance. On top of ample liquidity, expectations of a stronger economy in the second half and positive corporate earnings prospects will keep the market resilient. Also, an easing of geopolitical risks involving North Korea's nuclear programs will help boost sentiment in Seoul stocks.

For Korean institutions to grow into global players, they need to size up their volumes. However, unless retail investors regain confidence in the market, these domestic institutional investors cannot grow. With the service industry making a greater contribution to the nation's economic growth, the further development of the capital market is one of the primary tasks facing Korea Inc.

All people are anxious about their economic future, and so with the housing market becoming stagnant, maybe it's not a bad idea to look beyond investing in real estate at this point.

The stock market will remain volatile. Still, there are many unpolished gems selling at discounts. Economic growth may not be terrific this year, but by making longer-term investments in funds or companies with clean balance sheets and sustainable profits, reasonable returns will not be hard to come by. A greater risk may lie in not owning stocks.