"The Market Knew"…KOSPI Recovers to 3000 Despite Dollar Strength

Dollar Strength Is a Well-Known Concern... Limited Impact on the Stock Market

[Asia Economy Reporters Minwoo Lee, Sehee Jang] The dollar carry trade, which involves borrowing US dollars to invest in emerging markets, is rapidly shrinking. Concerns are emerging that funds may also exit the domestic stock market. However, since the dollar's strength has already been sustained and the market has recognized this, the impact is expected to be limited.

In fact, foreign investors' withdrawal from the domestic stock market is not noticeable, and the market is showing strength, having recovered the 3000-point level after a long time. As of 11:09 AM on the 15th, the KOSPI recorded 3001.41, up 1.10% from the previous trading day. It regained the 3000-point level during the session for the first time since the 5th. At the same time, the KOSDAQ stood at 1024.48, with its increase exceeding 1.5% compared to the previous trading day. Foreign investors drove the index by net buying more than 170 billion KRW in the KOSPI market alone.

Notably, the rise in the top market capitalization stocks was prominent. Celltrion, ranked 10th in market cap, surged by about 15%. Samsung Biologics (4th) and SK Hynix (2nd) also rose by 4.44% and 4.23%, respectively. Samsung Electronics, the largest by market cap, increased by 1.42%.

Concerns over the won-dollar exchange rate's strength have already been recognized and reflected in the market, so the actual impact is considered not significant. Kwangnam Park, head of the Digital Research Team at Mirae Asset Securities, explained, "Although concerns about capital flowing into the US due to the sustained dollar strength have not been completely alleviated, this issue has already been largely priced in. The KOSPI's recent drop to around 2800 points was also influenced by this."

Rather, the stock market was lifted by recovery expectations related to inflation concerns, China's economic slowdown, and the slowdown in South Korea's goods exports due to the US service sector-led recovery. Park added, "The People's Bank of China's shift to a more accommodative monetary policy significantly eased concerns about China's economic slowdown. The upcoming earnings and outlook from US retailers like Walmart and Home Depot, which will indicate whether goods sales improve, will be key to future structural shifts."

Jinwoo Lee, head of Investment Strategy at Meritz Securities, also viewed the impact of the sharp drop in the dollar carry trade index as potentially limited. He noted that such dollar-based arbitrage trades require either the borrowing currency or the investment currency to be stable, but recently both have become more volatile, making a sudden market reversal uncertain. Lee said, "The dollar's strength has already been sustained, and the Federal Reserve's tapering (asset purchase reduction) has been absorbed throughout this year. However, if global liquidity issues arise, such as the China Evergrande problem, it could significantly affect not only carry trades but the overall stock market."

Meanwhile, the won-dollar exchange rate started higher on the day, trading around 1179-1180 KRW. This partly reflects the final bid of the won-dollar rate at the 1181 KRW level in the New York offshore non-deliverable forward (NDF) market. As of 10:20 AM in the Seoul foreign exchange market, the won-dollar rate was trading at 1179.6 KRW, the same level as the previous trading day. It started at 1181.0 KRW, up 1.4 KRW, and fluctuated between 1179.6 and 1182.5 KRW.

Researcher Kyuyun Jeon at Hana Financial Investment explained, "Compared to the dollar's strength, the won has fallen relatively faster, but foreign investors' additional entry into the stock market in the latter part of last week and continued net buying have played a role. The yuan's strength also had some influence."

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