Frozen Two-Week Treasury Yield Hits Lowest Level Amid Jackson Hole Aftermath... Foreign Investors Pack Up Again Due to 'High Exchange Rate Shock'

Powell's Strong Monetary Tightening Confirmed at Jackson Hole Meeting: "Investor Deposits Plummet to Lowest Level"
Prolonged Strong Dollar Trend Leads to Foreigners Turning to Net Selling in September... Investor Sentiment Expected to Worsen

[Asia Economy Reporter Lee Seon-ae] The 'Jackson Hole aftershock' is no joke. Following Federal Reserve (Fed) Chair Jerome Powell's '8-minute speech' at the Jackson Hole meeting, which clearly conveyed the Fed's stance to maintain strong monetary tightening policies such as further interest rate hikes, investor sentiment has deteriorated, with investor deposits?considered as standby funds for the stock market?dropping to the lowest level this year. Despite foreigners purchasing about 4 trillion won worth of stocks last month amid soaring exchange rates, signs of their withdrawal from the domestic stock market after confirming the prolonged strong dollar trend in the Jackson Hole speech suggest that market sentiment will freeze even further.

According to the Korea Financial Investment Association on the 5th, investor deposits stood at 53.0632 trillion won as of the 31st of last month, marking the lowest level this year. This is the lowest level in about 1 year and 10 months since November 6, 2020 (51.899 trillion won). The average deposits last month were 54.9415 trillion won, down 18.5% compared to 67.3979 trillion won in January. This is the lowest level in 1 year and 10 months since the 53.8308 trillion won recorded in October 2020.

Investor deposits refer to the money investors leave in securities firms' accounts after selling stocks or to buy stocks. Since these funds can be used for stock investment at any time, they are classified as standby funds for the stock market and are considered an indicator of market sentiment.

As the domestic stock market, which ended its bear market rally, enters the early stages of a downturn starting in September amid expectations of deteriorating earnings, investor sentiment has worsened. Additionally, the 'money move' to shift assets to 'safe assets' such as banks due to interest rate hikes is another factor. Consequently, the domestic exchange-traded fund (ETF) assets under management in August decreased by 1.0955 trillion won, marking the first decline since January this year.

Kim Dae-jun, a researcher at Korea Investment & Securities, said, "It is an environment where predicting market trends is more difficult than ever," adding, "The Fed's strong tightening signals reduce the likelihood of a quick recovery in investor sentiment, and the weakening profit momentum in the market is also a burden."

Investor deposits as of the most recent available data on the 1st of this month recorded 55.5022 trillion won, but with growing cautious sentiment, the downward trend is expected to continue. Signs of foreign investors' withdrawal are likely to accelerate this trend.

According to the Korea Exchange, foreigners net purchased 3.9837 trillion won worth of stocks in the domestic stock market during August, the largest monthly net purchase by foreigners this year. Foreigners recorded net sales only on two days: the 10th (182.1 billion won) and the 12th (6.1 billion won). Despite the soaring exchange rate, the domestic market's undervaluation attractiveness led to continued net purchases. However, this month, foreigners have shown a 'sell' movement, withdrawing from the domestic stock market again. Foreigners net sold 674.8 billion won over two trading days from the 1st to the 2nd of this month, selling 424.9 billion won on the 1st and 249.9 billion won on the 2nd.

After Fed Chair Powell's hawkish remarks on the 26th of last month (local time), the strong dollar trend did not ease, reversing the market mood. Kim Yumi, head of the investment strategy team at Kiwoom Securities, said, "It seems unlikely that the Fed's hawkish stance on monetary tightening will change significantly," adding, "Chairman Powell is expected to reaffirm his hawkish position at upcoming monetary policy conferences."

The securities industry expects the strong dollar trend to persist for the time being, which will worsen foreign investor demand and increase downward pressure on the domestic stock market. The upcoming Federal Open Market Committee (FOMC) meeting this month is also expected to be a negative factor, with a large interest rate hike anticipated. An increase of 0.50 to 0.75 percentage points in the benchmark interest rate is expected.

Na Jeong-hwan, a researcher at Cape Investment & Securities, explained, "Before the Jackson Hole speech, despite the rising exchange rate, foreign investors showed continuous net buying, expecting the strong dollar to be near its peak and to calm down. However, after the speech, as the possibility of the US benchmark interest rate remaining high next year increased, concerns that the strong dollar trend could last longer than expected led foreigners to show net selling in the domestic stock market."

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