'Black Tuesday' KOSPI down 1.61%... Government bond yields hit highest point of the year

KOSPI down 1.61%, KOSDAQ down 1.99%
South Korea's interest rates soar with rising US Treasury yields
USD/KRW exchange rate nears 1300 won amid weak yen

[Asia Economy Reporter Hwang Junho] On the 7th, South Korea's stock market closed lower. The yield on the U.S. 10-year Treasury bond surged to 3%, dampening risk asset appetite, and South Korea's government bond yields hit their highest levels of the year. Subsequently, the won-dollar exchange rate soared due to the strong dollar, increasing downward pressure on the stock market.

On that day, the KOSPI closed at 2,626.34, down 1.66% from the previous session. Although individual investors attempted to lift the index with net purchases worth 990.8 billion KRW, foreign investors and institutions sold off, resulting in a continuous decline throughout the day. Foreign investors net sold 209.1 billion KRW, and institutions net sold 821.1 billion KRW.

Preference for safe-haven assets increased, leading to an expansion in foreign investors' net short positions in cash and futures. This was largely due to renewed concerns over U.S. inflation. Amid inflation worries, the U.S. 10-year Treasury yield rose above 3% the previous day, and accordingly, South Korea's government bond yields reached new yearly highs during the morning session. The 3-year bond yield recorded 3.207%, surpassing the previous yearly high of 3.187%. The 5-year bond yield also broke through its yearly high of 3.393%, reaching 3.461%.

The strong dollar also pressured the stock market. Robust U.S. employment data heightened concerns about Federal Reserve tightening, driving the dollar's strength. Consequently, the won-dollar exchange rate closed at 1,257.70 KRW, up 1.21% from the previous day.

Kim Seokhwan, a researcher at Mirae Asset, analyzed, "The yen weakened sharply, breaking through 132 yen per dollar, its lowest level in 20 years. The Korean won also followed the yen's depreciation, surging nearly 15 won intraday."

Among all KOSPI-listed stocks, 730 stocks declined. Major market capitalization leaders also showed significant drops. Samsung Electronics, the perennial market leader, closed down 1.95% at 65,500 KRW for the day. LG Energy Solution, which showed early gains, ended the session down 1.26% at 432,000 KRW. Stocks like LG Chem (-4.96%) and Kakao (-4.43%) fell more than 4%.

By sector, only the banking sector, expected to benefit from rising interest rates, showed gains (0.36%). In contrast, sectors such as medical precision (-4.18%), textiles and apparel (-3.47%), and pharmaceuticals (-2.75%) saw their stock prices decline.

The KOSDAQ also experienced foreign investor outflows. Although individual investors net bought 258.3 billion KRW, foreign and institutional investors net sold 103.5 billion KRW and 151.9 billion KRW respectively, leading to a decline in the index.

Among all KOSDAQ stocks, 1,190 stocks fell. Several large-cap stocks dropped more than 3%. HLB fell 6.34% to 40,600 KRW compared to the previous session. L&F, Celltrion Pharm, Cheonbo, and Wemade also showed declines exceeding 3%.

Despite the market downturn, the newly listed stock Cheongdam Global hit the daily upper limit. This was just two trading days after its listing. It closed at 9,930 KRW, up 29.93% from the previous day. Cheongdam Global, an e-commerce platform company established in November 2017, was listed on the 3rd of this month.

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 of big tech companies, which appears to have caused a chain reaction. Photo by Moon Honam munonam@

Lee Kyungmin, a researcher at Daishin Securities, analyzed, "Although investment sentiment seemed to improve recently due to easing concerns about recession and tightening speed, last week's strong U.S. employment data raised perceptions that tightening could accelerate, causing U.S. Treasury yields to rise and foreign exchange market volatility to increase, shaking investment sentiment again."

He added, "When concerns about interest rate hikes subside, recession fears shake the market; when recession fears ease, interest rate hike issues unsettle the market again. Until inflation stabilization is confirmed or the Fed clearly presents guidelines, fluctuations are inevitable." He forecasted that this week's U.S. Consumer Price Index (CPI) for May and next week's Federal Open Market Committee (FOMC) meeting in June will influence the stock market atmosphere accordingly.

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