Why Did the Korean Stock Market Rebound While the US Market Fell Despite Interest Rate Cuts?

[Asia Economy Reporter Oh Ju-yeon] On the 3rd (local time), despite the Federal Reserve (Fed) making an emergency 0.5 percentage point cut to the benchmark interest rate, the New York stock market closed lower, whereas the domestic stock market showed a different trend by rising more than 2% during trading on the 4th. While the rate cut in the U.S. triggered economic anxiety and skepticism about additional stimulus measures, pulling down the index, the domestic market saw the dollar weaken due to the rate cut, leading to a level-down in the won-dollar exchange rate, which in turn stimulated net buying by foreign investors. Foreign investors led the index rise by net buying 196 billion won worth of stocks in the KOSPI market on the day.

As of 2:47 p.m. that day, the KOSPI recorded 2,058.16, up 2.19% from the previous trading day. The KOSDAQ index rose 1.99% to 639.27. This index rise was driven by foreign investors.

At this time, foreign investors purchased 195.8 billion won worth of stocks in the KOSPI market, switching to net buying after 8 trading days. They also bought 96.6 billion won worth of stocks in the KOSDAQ market.

This is in stark contrast to the U.S. stock market, which plunged nearly 3% the previous day.

Regarding this, Lee Kyung-min, a researcher at Daishin Securities, analyzed, "The won-dollar exchange rate is fluctuating around 1,185 won due to the dollar weakening following the U.S. rate cut," adding, "The won-dollar exchange rate breaking below the 1,190 won level appears to have had a positive impact on foreign investor demand."

According to Lee’s explanation, while the U.S. stock market initially welcomed the rate cut, short-term economic anxiety and doubts about additional stimulus measures stimulated profit-taking desires, the KOSPI’s previous rebound was minimal, and the dollar weakened due to the U.S. rate cut, turning foreign investors into net buyers. Foreign investors had sold up to 800 billion won worth of stocks daily since the 24th of last month, totaling 4.5 trillion won over 7 trading days.

Lee said, "Looking at a longer time series, the U.S. stock market continued its record-high streak until February 19, whereas the Korean stock market maintained a weak trend after its peak on January 20," adding, "Ultimately, the timing of the correction and the scale of the short-term rebound differed, and changes in the foreign exchange market positively influenced domestic supply and demand, limiting the initial shock to the KOSPI and expanding the intraday gains."

However, he added that it is necessary to consider that the global stock market may fluctuate depending on the spread of the novel coronavirus infection (COVID-19), economic indicator results, and policy effectiveness.

Lee forecasted, "In this process, the KOSPI’s decline will be limited, and the rebound will gain strength," noting, "Since the spread of COVID-19 to regions other than Daegu and Gyeongbuk is limited and the first full survey of Shincheonji Church members is nearing completion, if the peak of new confirmed cases becomes visible, the fear sentiment can be controlled."

This content was produced with the assistance of AI translation services.