'Worst Inflation Shock' Crushes KOSPI... Even 2520 Level Collapses

[Image source=Yonhap News]

[Asia Economy Reporter Lee Seon-ae] The KOSPI index broke through its yearly low amid the 'high inflation shock.' The index is staggering under the worst inflation shock, with a sharp intraday decline causing it to fall below the 2520 level.

On the 13th, the KOSPI opened at 2550.21, down 45.66 points (1.76%) from the previous close, and quickly dropped over 2% to the 2540 range. It continued to widen its losses, falling below 2520. At 9:48 a.m., it slid to 2519.53, breaking the yearly low of 2546.80 recorded during trading on the 12th of last month.

The rise in the U.S. Consumer Price Index (CPI) for May hit the highest level in 41 years, increasing expectations that the U.S. Federal Reserve (Fed) may tighten monetary policy further, putting pressure on financial markets. On the 10th (local time), the Dow Jones Industrial Average closed at 31,392.79, down 880.00 points (2.73%) from the previous close. The Standard & Poor's (S&P) 500 index dropped 116.96 points (2.91%) to 3,900.86, and the tech-heavy Nasdaq index fell 414.20 points (3.52%) to 11,340.02.

This marked the first time in over two years since March 22-23, 2020, during the early days of the COVID-19 pandemic, that the S&P 500 index fell more than 2% for two consecutive days. The May U.S. CPI, released just before the market opened, surged 8.6% year-over-year, the largest increase since December 1981, sharply cooling investor sentiment. Market expectations are gradually rising that the Federal Open Market Committee (FOMC) meeting in June could see a 'giant step' of a 0.75 percentage point rate hike at once. The Fed has never implemented such a rapid rate increase since 1994.

Seo Sang-young, head of media content at Mirae Asset Securities, said, "The U.S. stock market plunged after the CPI announcement as expectations for inflation easing weakened. The sustained high inflation raises the possibility of a slowdown in U.S. consumer spending, bringing recession concerns into the picture, which burdens the Korean stock market." He added, "We expect significant fluctuations as the market awaits the FOMC."

Han Ji-young, a researcher at Kiwoom Securities, also noted, "The Korean stock market has been under bearish pressure since early this week due to the shock from the sharp rise in U.S. consumer prices in May. It will continue to experience increased volatility influenced by key economic indicators such as U.S. and Chinese retail sales and industrial production, as well as the June FOMC event." She advised, "Although there is a possibility of a sell-off, considering the market valuation attractiveness and favorable earnings outlook, it is more appropriate to respond with a wait-and-see approach rather than joining the sell-off."

Na Jung-hwan, a researcher at Cape Investment & Securities, said, "The market is affected by the U.S. high inflation shock. Overall, oil prices have a significant impact on inflation, and it seems unlikely that oil prices will stabilize before the Russia-Ukraine war ends." He added, "U.S. Treasury yields and a strong dollar are also burdens on the KOSPI. However, the upward trend in KOSPI corporate earnings forecasts will provide downside support."

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