KOSPI Reacts to 'Interest Rate Speed Adjustment'... "Sustained Uptrend Will Be Difficult"

FOMC Minutes Released on 24th & KFTC Decision Boost KOSPI
"Considering Recession & Continued US Rate Hike, Sustained Uptrend Difficult"

[Image source=Yonhap News]

[Asia Economy Reporter Minji Lee] The Bank of Korea decided at this year's final Monetary Policy Committee (MPC) meeting to raise the base interest rate by 0.25 percentage points, setting the rate at 3.25% per annum. Although it did not take a step (a 50 basis point increase at once), it marked the first time in history that the base rate was raised six consecutive times, following increases in April, May, July, August, and October. The stock market initially responded positively, but experts remain skeptical about a sustained upward trend.

As of 10:15 a.m. on the 24th, the KOSPI stood at 2,432.93, up 0.6% (14.92 points) from the previous trading day. With the release of the minutes from the U.S. Federal Open Market Committee (FOMC) meeting in November, which showed that a significant number of members agreed to slow the pace of rate hikes, the KOSPI rose by more than 0.8% after the market opened. The MPC’s decision to implement a baby step (a 0.25 percentage point rate hike) in line with market expectations helped maintain the upward momentum. Currently, the exchange rate has dropped by more than 14 won to 1,338 won per dollar, and the yield on the 3-year government bond has also declined to the 3.7% range.

However, these factors are unlikely to drive a sustained rise in the stock market. While the pace of U.S. rate hikes may slow, the prevailing view is that the terminal rate could be higher. The market currently expects a 50 basis point rate hike at the December FOMC, followed by 25 basis point hikes in February and March next year, with some analyses suggesting that increases could continue through May (25 basis points). If U.S. rate hikes persist, the dollar’s strength will likely continue, which could dampen domestic investor sentiment toward stocks. Researcher Najunghwan of Cape Investment & Securities said, "There is a high possibility that the U.S. rate ceiling will be 5% or 5.25%. The December FOMC, reflecting the November CPI results, will provide hints about the duration of rate hikes."

It is also important to keep in mind that the environment is entering a phase where corporate profit rebounds are difficult. Although recession concerns have been interpreted as a factor limiting rate hikes and thus driving index gains, in a situation where rate hike pacing is expected to slow, worries about the economy could exert downward pressure on the index. In other words, the KOSPI lacks the strength to support its rise. On the same day, the Bank of Korea lowered its economic growth forecast for next year by more than 0.4 percentage points, from 2.1% to 1.7%.

Researcher Lim Jongyoung of IBK Investment & Securities said, "With inventory issues among retailers and distributors and easing global supply chains causing order cuts among upstream companies, a decline in global cargo volume is expected. During the inventory reduction process of retailers, there is a high possibility of decreases in export volumes and selling prices for domestic companies." In fact, operating profits of KOSPI-listed companies are expected to be 220 trillion won this year, down by more than 20 trillion won compared to last year. The U.S. has also entered a recessionary environment, with the Q3 S&P 500 earnings surprise rate at 3.4%, lower than the past five-year average of 8.7%.

As concerns about recession intensify, bond market yields are expected to stabilize after the first half of next year. Although additional rate hikes are anticipated in the first quarter of next year, expectations for rate cuts are growing due to expanding corporate credit risks, with the 3-year government bond yield expected to fall to the low 3% range. Researcher Min Jihee of Mirae Asset Securities analyzed, "Due to increased downside risks to the economy, it will be difficult for the base rate to continue rising, and supported by an accommodative monetary policy stance in the second half of next year, credit spreads will also attempt to narrow."

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