KOSPI at a Crossroads Amid Threat of Market Cap Collapse Below 2,000 Trillion Won

International Situation and Economic Recession Concerns Overlap
Investment Funds of 101 Trillion Won Evaporate in About a Month

On the 16th, as concerns about inflation eased due to a sharp drop in international oil prices and the US February Producer Price Index falling short of expectations, the KOSPI also started higher. This is a view of the Hana Bank dealing room in Jung-gu, Seoul. On that day, the KOSPI opened at 2,649.85, up 28.32 points (1.08%), and the won-dollar exchange rate opened at 1,141.2 won, down 1.6 won. Photo by Kim Hyun-min kimhyun81@

[Asia Economy Reporter Hwang Junho] The KOSPI stands at a crossroads in defending its market capitalization of 2,000 trillion won. The 'KOSPI market capitalization 2,000 trillion won era' that began at the end of last year is facing a crisis just three months later. Due to changes in the international situation and concerns about an economic recession, investment funds totaling 101 trillion won have disappeared over the past month.

According to the Korea Exchange on the 16th, the KOSPI market capitalization was recorded at 2,059.3899 trillion won as of the 15th. It retreated from the 2,100 trillion won level after the 11th. Over three trading days, the KOSPI slipped, and the market capitalization continuously declined. Compared to a month ago, 45 trillion won has vanished, and since February 11, when Russia's plan to invade Ukraine was first revealed, 101 trillion won has disappeared.

The variable in defending the KOSPI market capitalization of 2,000 trillion won is the change in the international situation. Since January, the question of whether interest rates will rise has acted as a constant downward pressure on the stock market. Additionally, the Federal Reserve's (Fed) ability to control the rising inflation will be a key factor in maintaining the 2,000 trillion won threshold.

Seosangyoung, a researcher at Mirae Asset Securities, forecasted, "The market trend will diverge depending on whether the Fed focuses on economic slowdown or inflationary pressure." Han Jiyoung, a researcher at Kiwoom Securities, also analyzed, "The probability of a 25 basis point increase at the March FOMC is over 98%, and the probability of a 100 basis point increase by the June FOMC is about 49%. The Fed's determination to fight inflation is crucial." After the FOMC, market participants are expected to focus on Fed Chair Jerome Powell's remarks and the dot plot regarding the pace of U.S. monetary policy normalization. Experts believe there is a high likelihood of a 25 basis point (0.25%) rate hike at the FOMC meeting on the 16th (local time).

On the 16th, as concerns about inflation eased due to a sharp drop in international oil prices and the U.S. February Producer Price Index falling short of expectations, the KOSPI also started higher. The photo shows the dealing room of Hana Bank in Jung-gu, Seoul. On that day, the KOSPI opened at 2,649.85, up 28.32 points (1.08%), and the won-dollar exchange rate opened at 1,141.2 won, down 1.6 won. Photo by Kim Hyun-min kimhyun81@

The duration of the conflict between Russia and Ukraine is also a variable in defending the market capitalization. If it becomes a prolonged war, the economic slowdown caused by rising prices will intensify, which could strengthen downward pressure on the stock market. However, on this day, Ukrainian President Zelensky stated that he recognizes that NATO membership, which Russia desires, is impossible, and the fact that Russia is facing a default crisis due to U.S. economic sanctions lends credibility to the view that this conflict may be short-lived. In fact, on the 15th (local time), the U.S. stock market closed higher following President Zelensky's remarks. Thanks to the drop in international oil prices triggered by his statement, West Texas Intermediate (WTI) crude oil, which had surged to $123 on the 8th, fell more than 6% on that day alone, dropping to around $95. Lee Jaeyoon, a researcher at SK Securities, analyzed, "In the U.S. stock market, only the energy sector declined due to the drop in oil prices, while technology stocks surged." Following the rise in the U.S. stock market, the domestic market also continued its upward trend on that day. As of 9:55 a.m., the KOSPI recorded 2,631.92, up 0.40% from the previous close.

China's COVID-19 lockdown policies and its close relationship with Russia also need to be monitored. If China continues to increase the number of cities under COVID-19 lockdowns, it will negatively affect the performance of South Korea's export industries. However, on this day, the Chinese government announced a decrease in COVID-19 cases and relaxed the criteria for releasing patients from quarantine. Jung Jinsu, a researcher at Hyundai Motor Securities, analyzed, "The close relationship between Russia and China has led to a sharp decline centered on Hong Kong and Chinese ADRs, which have high exposure to the West. The pandemic-like COVID-19 lockdown measures in China, which strengthen control over densely populated cities including Shenzhen, are particularly negative for China's consumer economy."

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