Fed's Quantitative Tightening and China Risks Trigger 'Continuous Negative Factors'... KOSPI Slips to 2910 Level

[Image source=Yonhap News]

[Asia Economy Reporter Lee Seon-ae] As the U.S. Federal Reserve (Fed) hinted at a more hawkish (tightening) approach than the market had anticipated with 'quantitative tightening,' and COVID-19 cases surged globally, investor sentiment in financial markets appears to be freezing up. On the 10th, domestic indices started lower and showed a widening decline during the session, reflecting a sluggish trend.

On the 10th, the KOSPI index opened at 2,947.37, down 7.52 points (0.25%), and the KOSDAQ opened at 992.49, down 2.67 points (0.27%). As the decline deepened, the KOSPI fell to the 2,910 level, and the KOSDAQ dropped to the 970 level. As of 10 a.m., the KOSPI was trading at 2,912.14, and the KOSDAQ at 976.56.

Quantitative tightening means reducing the size of the Fed's balance sheet by not reinvesting the proceeds from maturing financial assets such as U.S. Treasury bonds and mortgage-backed securities (MBS) that it had previously purchased. When the Fed buys financial assets, liquidity is injected into the market, and conversely, liquidity is absorbed when it reduces holdings. A reduction in market liquidity acts as a negative factor for the stock market.

The spread of COVID-19 is also a negative factor. The U.S. daily average of new COVID-19 cases has surpassed 700,000, with cumulative cases approaching 60 million. The situation in China is also challenging. About 20 days before the Winter Olympics, 20 confirmed cases were reported in Tianjin, one of China's four direct-controlled municipalities located 140 km from Beijing. Currently, Chinese authorities have ordered COVID-19 testing for all 15 million residents of Tianjin. Additionally, the prolonged full lockdown of Xi'an due to COVID-19 is also having a negative impact on the domestic stock market.

Individual investors are the only ones net buying alone, while foreigners and institutions are selling together, driving the indices down. As of 10:05 a.m., individuals showed net buying of 283.8 billion KRW and 180.2 billion KRW in the KOSPI and KOSDAQ markets, respectively. In contrast, foreigners showed net selling of 35.1 billion KRW and 114.3 billion KRW, and institutions also showed net selling of 247 billion KRW and 60 billion KRW in the two markets, respectively.

Jo Byung-hyun, a researcher at Yuanta Securities, said, "There is a growing concern about the Fed's more radical monetary policy and a tightening stance beyond normalization levels. At least at this point, the policy direction is confirmed, but uncertainty about the intensity and speed has significantly increased, and until the path becomes clearer, it is likely to act as a volatility-inducing factor."

Kim Yumi, a researcher at Kiwoom Securities, also explained, "This week, the financial market's attention will focus on U.S. inflation and the Fed's monetary policy moves. Since the release of the December Federal Open Market Committee (FOMC) minutes confirmed the Fed's intention to normalize monetary policy more quickly, sensitivity to inflation indicators and Fed officials' remarks may be heightened in the financial markets."

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