Stumbling KOSPI, Weakened 'January Effect'... Sharp Decline in Trading Volume

KOSPI Shaken by Sharp Drop in US Stock Market
Trading Volume Plummets... Weakened 'January Effect'
Capital Inflow Shrinks Ahead of LG Energy Solution IPO

On the morning of the 6th, the KOSPI index and the KRW-USD exchange rate are displayed on the electronic board in the dealing room of Hana Bank's headquarters in Jung-gu, Seoul. [Image source=Yonhap News]

[Asia Economy Reporter Minwoo Lee] As the U.S. Federal Reserve (Fed) took a more hawkish stance than expected, the U.S. stock market plunged, impacting the domestic market as well. With major initial public offerings (IPOs) such as LG Energy Solution scheduled, the incentive for funds to flow into the stock market has weakened, leading to an analysis that a subdued atmosphere will continue for the time being.

As of 10:29 a.m. on the 6th, the KOSPI recorded 2,938.17, down 0.53% from the previous day. The KOSDAQ also showed sluggishness, falling into the 900 range early in the session. This is interpreted as the market contracting after the Fed revealed a somewhat more hawkish stance than expected during the Federal Open Market Committee (FOMC) meeting in December last year. Many members mentioned that a faster pace of interest rate hikes than expected could be justified, and some even argued that rates should be raised immediately after tapering (asset purchase reduction) ends. Following this announcement, investor sentiment weakened, and all three major U.S. indices fell more than 1%. The tech-heavy Nasdaq index dropped 3.34% on the day alone. This impact is believed to have influenced the domestic stock market as well.

Unlike January last year, the sharp decline in trading volume also seems to have affected the sluggish 'January effect' in the stock market at the beginning of the year. After the dividend cut in 2020, the KOSPI trading volume reached 23 trillion won over five trading days. Throughout January, the KOSPI trading volume did not fall below 20 trillion won. In contrast, the average trading volume for five trading days after this year's dividend cut is about 10.3 trillion won. This is interpreted as a result of a sharp decline in individual trading. Customer deposits have also stopped increasing since peaking at 75.168 trillion won on July 29 last year, when KakaoBank and Krafton were listed.

There is also an analysis that the sentiment to secure funds for investing in LG Energy Solution's IPO at the end of this month has put a brake on the rally. If LG Energy Solution's public offering price is set at the top end of 300,000 won, its market capitalization will reach 70.2 trillion won, instantly becoming the third largest on the KOSPI. Son Juseop, a researcher at Cape Investment & Securities, explained, "Due to the unprecedented scale of this large IPO, demand will concentrate, and continuous selling to secure buying funds for LG Energy Solution may cause early price declines in other stocks." He added, "Once LG Energy Solution is included in major indices, the weights of other stocks in the indices will be reduced, which will affect their prices."

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