Due to Interest Rate Hike Burden and Weakness in Chinese Stock Market... KOSPI Closes Lower

KOSPI Closes Lower Amid Interest Rate Hike Concerns
Investor Sentiment Weakens on Potential Further Hikes
Asian Markets Including China Also Weaken Impacting KOSPI

[Asia Economy Reporter Junho Hwang] The Bank of Korea's base rate cut and the possibility of further cuts, along with weakness in Asian stock markets including China, dragged down the KOSPI.

On the 26th, the KOSPI closed at 3,128.53, down 18.28 points (0.58%) from the previous day. The KOSPI started the day higher but turned downward after the Bank of Korea's rate hike announcement. Individual investors tried to reverse the index's decline by net buying 442.3 billion KRW. However, the net selling pressure from foreigners (364.5 billion KRW) and institutions (83.3 billion KRW) was stronger.

Along with the base rate hike, Governor Lee Ju-yeol of the Bank of Korea opened the door to the possibility of additional rate hikes, sharply dampening investor sentiment.

In particular, foreigners' net selling was significant. Foreign investors showed net buying dominance until 30 minutes before the Bank of Korea's rate hike decision announcement but then switched to net selling dominance. Foreigners had focused on net selling over the past 10 trading days until the 23rd but switched to net buying on the 24th.

The biggest factor behind the decline in investor sentiment is the possibility of additional rate hikes. At an online press conference immediately after the Monetary Policy Committee meeting, Governor Lee responded to a question about the need for further base rate hikes by saying, "The first step was taken due to the necessity to alleviate accumulated financial imbalances." He added, "Although the base rate was raised by 0.25 percentage points, the interest rate level remains accommodative. The real interest rate still shows a large negative value, and it is not at a level that restricts the real economy, and the base rate is still lower than the neutral rate." However, he explained, "The timing of additional adjustments depends on the impact of COVID-19 on the economy, policy changes in major countries such as the U.S. Federal Reserve (Fed), and so on. As always, we should neither rush nor delay."

On the 24th, the KOSPI opened at 3,119.70, up 29.49 points (0.95%) from the previous trading day, at the Hana Bank dealing room in Jung-gu, Seoul. The KOSDAQ opened at 1,002.19, up 9.01 points (0.91%) from the previous trading day, and the won-dollar exchange rate started at 1,171.3 won, down 2.4 won from the previous trading day (1,173.7 won). Photo by Kim Hyun-min kimhyun81@

Among KOSPI sectors, all sectors except textiles and apparel (1.30%), transportation and warehousing (1.03%), finance (0.46%), transportation equipment (0.40%), medical precision instruments (0.33%), and paper and wood (0.18%) recorded declines. Among all stocks, 488 declined while 349 rose.

Among the top market capitalization stocks, Samsung Electronics' decline stood out. It closed at 74,600 KRW, down 1.45% from the previous day. Samsung Electronics started higher as U.S. semiconductor stocks rose the previous day, with the Philadelphia Semiconductor Index up 0.8%. However, it reversed to a decline amid foreign selling. On the other hand, SK Hynix, which saw less selling pressure, maintained its upward trend, closing up 0.48% at 104,000 KRW. Additionally, NAVER closed down 1.63% at 423,500 KRW, Kakao fell 0.99% to 149,500 KRW, and Samsung Biologics ended down 0.93% at 954,000 KRW.

The KOSDAQ maintained its upward trend, supported by individual investors' net buying. It closed at 1,020.44, up 0.26% from the previous day. Individuals showed a net buying dominance of 160.2 billion KRW, sustaining the rise. Foreigners and institutions sold 122.2 billion KRW and 21.7 billion KRW, respectively.

By sector, the digital sector rose 7.36% compared to the previous day's closing price, driven by the stock price increase of Pearl Abyss. Pearl Abyss is currently trading at 87,900 KRW, up 25.57% from the previous day's close, on expectations for the metaverse new release 'Dokkaebi.' Kakao Games also recorded an 11.20% increase, closing at 85,400 KRW. In contrast, NCSoft, in the same gaming sector, closed down 15.29% at 709,000 KRW.

Among KOSDAQ sectors, besides the digital sector, transportation parts (2.93%), transportation (1.64%), broadcasting services (0.91%), entertainment (0.77%), and electrical and electronics (0.76%) also experienced gains.

[Image source=AP Yonhap News]

The KRW-USD exchange rate closed at 1,170.50 KRW, influenced by the weakening yuan and strengthening dollar. The KRW-USD rate initially dropped to 1,163 KRW immediately after the rate hike announcement but then rebounded to re-enter the 1,170 KRW range.

Lee Kyung-min, a researcher at Daishin Securities, analyzed, "Looking at the reversal in the exchange rate, the impact of the rate hike can be seen as limited. The widening weakness in the Chinese stock market and the nearly 2% sharp decline in the Hong Kong stock market also affected investor sentiment in the Asian region, impacting the stock market."

The next focus for market participants is the speech by Jerome Powell, Chair of the U.S. Federal Reserve (Fed), at the Jackson Hole Symposium on the 27th. The symposium's theme is "Macroeconomic Policy in an Uneven Economy," and it is expected to present diagnoses of indicators that justify rate hikes, such as inflation and employment, rather than issues related to tapering. Ahead of this, the U.S. 10-year Treasury yield rose 0.05 percentage points to 1.349%, the highest level since early this month. This is interpreted as easing concerns about a slowdown in the economic rebound due to the spread of the Delta variant.

Han Ji-young, a researcher at Kiwoom Securities, predicted, "Since the Jackson Hole event is approaching, its impact on the domestic stock market is expected to be limited. It is likely that a cautious market will continue, with trading battles in a flat range following the previous trading day."

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