Markets Awaiting Remarks from US Chair Powell... KOSPI and KOSDAQ Close Lower Ahead of FOMC

FOMC Outcome on 5th Leads to Market Closure
Rising Caution... Selling Pressure Increases Downside Risk
Institutions Sell KOSPI for 3 Consecutive Days
Foreigners Buy for 2 Consecutive Days... Net 331.1 Billion KRW Sold in Futures Market

On the 27th, when the KOSPI and KOSDAQ indices plunged by over 2%, dealers were working in the dealing room of Hana Bank in Euljiro, Seoul. The U.S. stock market sharply declined due to concerns over a slowdown in the economic recession and earnings uncertainty among big tech companies, which appears to have caused a chain reaction. Photo by Moon Honam munonam@

[Asia Economy Reporter Hwang Yoon-joo] On the 4th, both the KOSPI and KOSDAQ closed lower. The two major indices started higher but failed to sustain the gains as caution deepened ahead of the U.S. Federal Open Market Committee (FOMC) regular meeting results.

◆ KOSPI, Foreigners Sell Futures... Taking Preemptive Action with Selling and Adopting a Wait-and-See Stance=On this day, the KOSPI closed down 2.89 points (-0.11%) at 2,677.57. It started strong at 2,690.45, up 9.99 points (+0.37%), but showed mixed trends in the morning before declining.

Individuals and foreigners were net buyers of 98.5 billion KRW and 31.3 billion KRW, respectively. Institutions were net sellers of 149.6 billion KRW. Foreigners showed 'buying' for two consecutive days in the KOSPI spot market but recorded 'selling' for two consecutive days in the KOSPI200 futures market. They sold 331.1 billion KRW worth in the futures market alone on this day. By institution type, private equity funds led selling with 105.4 billion KRW, and pension funds with 58.4 billion KRW. Financial investment was the sole buyer with 64.5 billion KRW.

The increased downward pressure in the afternoon was due to expanded caution and a continued wait-and-see stance ahead of the FOMC regular meeting results.

This is interpreted as market caution reflecting the confirmed interest rate hike by the FOMC. Seo Sang-young, head of Media Content at Mirae Asset Securities, said, "The FOMC results will be announced early on the 5th, but since the domestic market is closed, participants appear to be preemptively selling due to uncertainty and will make judgments after seeing the Fed meeting results," adding, "Market participants responded with a wait-and-see stance."

Among the top market cap stocks, Samsung Electronics +0.59%, Kakao +0.56%, Hyundai Motor +0.27%, and LG Chem +0.19% closed higher. Naver and Kia ended flat. The rest closed lower. Particularly, Samsung Biologics fell the most at -2.04%.

By sector, textiles and apparel dropped the most at -2.01%, followed by pharmaceuticals -1.83%, paper and wood -1.29%, and food and beverage -1.19%. The electric and gas sector closed up 3.11%, ranking first in gains. Korea Gas Corporation +5.73% and Korea Electric Power Corporation +3.61% led the sector's price movement.

The surge in Korea Gas Corporation's stock price is attributed to U.S. natural gas prices hitting their highest level in about 14 years since September 2008, as Korea Gas Corporation holds a monopolistic position in the natural gas wholesale market. The Henry Hub price, the U.S. natural gas benchmark, soared over 9% to $8.14 per million BTU.

On the 27th, when the KOSPI and KOSDAQ indices plunged by over 2%, dealers were working in the dealing room of Hana Bank in Euljiro, Seoul. The U.S. stock market sharply declined due to concerns over a slowdown in the economic recession and earnings uncertainty among big tech companies, which appears to have caused a chain reaction. Photo by Moon Honam munonam@

◆ KOSDAQ, Foreigners 'Sell'... Preemptive Response to FOMC Results= The KOSDAQ closed down 7.51 points (-0.83%) at 900.06. It started the session at 911.16, up 3.59 points (+0.40%), but turned lower during the morning.

Individuals alone bought 146.6 billion KRW but failed to defend the index from falling. Foreigners and institutions were net sellers of 124.6 billion KRW and 17.7 billion KRW, respectively.

While foreigners only net sold 1.3 billion KRW in the KOSDAQ the previous day, today they sold over 100 billion KRW. This is interpreted as preemptive selling in response to the FOMC results, similar to the KOSPI. By institution type, pension funds +9.4 billion KRW and insurance +4.9 billion KRW were buyers in the KOSDAQ, but their buying was outweighed by selling from financial investment -18.7 billion KRW, investment trusts -7.2 billion KRW, and private equity funds -6.2 billion KRW.

Among the top 10 KOSDAQ market cap stocks, L&F +2.23% had the highest gain. Ecopro BM +1.78%, Cheonbo +1.01%, and Wemade +0.12% also closed higher, while the rest declined. Celltrion Pharm -2.11% and Celltrion Healthcare -1.93% had relatively high declines.

By sector, food and beverage fell the most at -3.61%, followed by medical precision instruments -1.89%, distribution -1.62%, communication services -1.62%, and pharmaceuticals -1.56%. Conversely, general electric and electronics +1.03% and IT components +0.80% closed higher.

[Image source=Yonhap News]

◆ FOMC Results Early on the 5th... Market Focuses on Chairman Powell's Remarks= The market has already largely priced in a 50 basis point hike by the Fed. The focus is on Federal Reserve Chairman Jerome Powell's remarks after the FOMC meeting. Previously, Fed officials mentioned a 'giant step' (75 basis point hike), drawing market attention to whether a 75 basis point hike will occur in June and the pace of tightening. Maintaining a hawkish stance like now could significantly dampen risk asset appetite.

Yesterday, employment data that could gauge the Fed's stance was released. According to the U.S. Department of Labor, job openings in March reached 11.55 million, an increase of 205,000 from the previous month. Contrary to market expectations, the labor shortage remains severe. Additionally, about 4.5 million Americans quit their jobs, indicating a continued 'worker's market.' The number of job openings per unemployed person was 1.9, nearly double the 1.2 in February 2020 before COVID-19.

Kim Seok-hwan, a researcher at Mirae Asset Securities, analyzed, "The number of job openings per unemployed person, which Chairman Powell considers a qualitative labor market indicator, has reached an all-time high," adding, "This means companies have to offer higher wages and more benefits to retain workers who are quitting."

He further pointed out, "Ultimately, high wages raise concerns about the 'Wage-Price Spiral effect,' which sequentially increases inflationary pressure."

The domestic market's shift from a morning rise to a decline is interpreted as a preemptive response to the possibility of a hawkish FOMC stance. Kim Dae-jun, a researcher at Korea Investment & Securities, evaluated, "The index showed a flat trend due to soaring European producer prices and FOMC caution, and despite foreigners' net buying, preemptive selling by institutions weighed on the market."

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