Market Fearful of Interest Rate Hikes Keeps KOSPI in Box for a Month... "Foreign Investors Silent, Lack of Follow-Through"

[Image source=Yonhap News]

[Asia Economy Reporter Lee Seon-ae] On the 23rd, the KOSPI, which started lower, turned to an intraday uptrend but lacked momentum and closed down. The market is in a state of confusion due to fears of adjustments caused by rising interest rates and inflation. After more than a month of a dull box range market, the upward momentum has clearly slowed. Although institutions and individuals both engaged in buying, the market ultimately failed to break out of the box range due to foreign investors' selling, who hold the key to the direction of the domestic stock market.

On this day, the KOSPI closed at 3,070.09, down 9.66 points (0.31%). It started at 3,069.26, down 10.49 points (0.34%), deepening the decline but managed to rebound above the 3,080 level in the afternoon. The net buying by individuals and institutions absorbed the selling pressure from foreign investors, narrowing the decline and lifting the index. Individuals and institutions net bought approximately KRW 78.7 billion and KRW 300.3 billion, respectively. However, foreign investors sold throughout the day, with net sales amounting to KRW 377.9 billion. Consequently, the market failed to rebound and closed lower.

Seosangyoung, a researcher at Kiwoom Securities, explained, "The previous day, the Nasdaq showed a 2.5% decline due to rising interest rates and a sharp drop in major theme stocks, leading the Korean market to start lower. When news came that the People's Bank of China did not absorb liquidity, the decline narrowed, and global major investment banks released analyses suggesting that the semiconductor shortage could persist long-term, causing related stocks to strengthen and reduce the decline."

The KOSDAQ closed at 936.60, down 17.69 points (1.85%). It started at 952.23, down 2.06 points (0.22%), and continued to decline throughout the day, falling more than 2%. While individuals net bought about KRW 123.8 billion, foreign investors and institutions net sold approximately KRW 49.1 billion and KRW 43.9 billion, respectively.

Most sectors recorded declines. Only textiles and apparel, non-metallic minerals, steel and metals, transportation equipment, distribution, construction, banking, and services closed higher. Among the top 10 KOSPI market capitalization stocks, only SK Hynix, NAVER, and Hyundai Motor closed higher. None of the top 10 KOSDAQ market capitalization stocks closed higher.

The market is expected to continue the dull box range trend. Interest rates are a key variable. Chaehyun-gi, a researcher at Cape Investment & Securities, said, "Recent market volatility is due to rising market interest rates," adding, "Concerns are growing that the liquidity contraction caused by rising market interest rates will end the bullish trend." Kim Dae-jun, a researcher at Korea Investment & Securities, also said, "Since domestic interest rates move in tandem with U.S. rates, we need to keep in mind the market weakness caused by a gradual rise in interest rates."

However, the dominant view is that such concerns are excessive. Park Sang-hyun, a researcher at Hi Investment & Securities, said, "Although concerns about rising interest rates are emerging, since 1990, during phases of rising U.S. 10-year Treasury yields, there has been only one instance where stock prices and economic indicators declined simultaneously," adding, "With strong economic stimulus and expanded vaccine distribution as tailwinds, global economies including the U.S. are likely to show a strong rebound. Although interest rates may rise faster than expected, solid economic fundamentals are expected to absorb much of the shock from rising rates."

An So-eun, a researcher at IBK Investment & Securities, also emphasized, "There is no need to fear inflation and monetary tightening behind the economic recovery before we even visually confirm the recovery," stressing, "Despite inflation concerns, the upward trend in the stock market will not change."

Meanwhile, investors are keenly focused on Federal Reserve Chair Jerome Powell's remarks scheduled for the evening. Han Dae-hoon, a researcher at SK Securities, said, "Powell's speech is scheduled, and the market's attention is inevitably focused on it," predicting, "Since the Fed has stated it will continue accommodative monetary policy, it is widely expected that Powell will try to soothe the market."

However, the absence of foreign investor demand is a worrying factor. Ultimately, the market's direction is judged to be determined by foreign investors. Lee Jae-seon, a researcher at Hana Financial Investment, said, "For a sustained upward trend in the index, it is important whether the strong buying by individuals, who were the main players in the January rally, continues or whether foreign investor demand, which has determined the index direction so far, improves," adding, "If individual buying weakens somewhat, the main factor determining the index level will inevitably be foreign investors, but so far, foreign investor demand has been neutral since the beginning of the year."

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