Concerns Over US-Origin Inflation... KOSPI and Exchange Rates Both Unstable

Concerns Over Inflation and Impact of US-China Talks
Korean Government Bond Yields Rise Again

[Image source=Yonhap News]

[Asia Economy Reporters Eunbyeol Kim, Jihwan Park] The domestic financial market is experiencing volatility as concerns over U.S. inflation and the high-level U.S.-China talks that began with a war of words are simultaneously influencing the market. Experts agree that volatility is likely to increase in the near term due to external factors.

As of 9:15 a.m. on the 19th, the KOSPI index stood at 3,025.07, down 40.94 points (1.34%) from the previous trading day. The index opened at 3,063.01, down 3.00 points (0.10%) from the previous close, and the decline is widening. By investor type, individual investors were net buyers of 393.9 billion KRW in the early session. In contrast, foreign investors and institutions were net sellers of 122.2 billion KRW and 258.9 billion KRW, respectively. At the same time, the KOSDAQ index was also declining, down 1.20% (11.41 points) to 938.42 compared to the previous day. Individuals were net buyers of 17.7 billion KRW, foreigners net buyers of 200 million KRW, and institutions net sellers of 15.5 billion KRW.

The decline in the domestic stock market today is attributed to the overnight rise in the U.S. 10-year Treasury yield. On the 18th (local time) in the New York bond market, the 10-year Treasury yield surged 11 basis points (1 bp = 0.01 percentage points) to 1.754%, marking the highest level since January last year. This inflation concern emerged in the market just one day after the Federal Open Market Committee (FOMC) decided to maintain an accommodative monetary policy. Typically, when expectations of rising inflation increase, bond yields rise (bond prices fall), increasing corporate borrowing costs and causing stock prices to fall.

Korean government bond yields are also rising again. As of 10:37 a.m. today, the 10-year government bond yield was trading at 2.191%, up 4.1 basis points from the previous day. The 3-year government bond yield also rose 3.4 basis points to 1.165%. As government bond yields rise and risk asset preference decreases, the won-dollar exchange rate is increasing (won weakening). As of 10:20 a.m. today, the won-dollar exchange rate was trading at 1,133.0 KRW, up 9.3 KRW from the previous day.

The escalating diplomatic tensions between the U.S. and Russia and the high-level U.S.-China talks are also negatively impacting the stock market. The U.S.-Russia conflict caused West Texas Intermediate (WTI) crude oil prices to plunge 7.1% compared to the previous session. Since the U.S. high-level delegates attending the talks are hardliners toward China, their tough remarks could negatively affect the stock market. Sangyoung Seo, a researcher at Kiwoom Securities, explained, "If friction between the U.S. and China intensifies, volatility will increase not only in the stock market but also in the foreign exchange, bond, and commodity markets, which will negatively affect foreign investor flows." On the other hand, Jinwoo Lee from Meritz Securities' investment strategy team forecasted, "During the Donald Trump administration, tariff issues were highlighted, and the domestic stock market, which is sensitive to global trade volume issues, was significantly affected. However, this time, political issues such as Hong Kong and Taiwan are taking precedence over trade, so it is unlikely that unexpected variables affecting the stock market will emerge."

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