KOSPI Slightly Relieved from Austerity Pressure... Foreigners and Institutions 'Simultaneously Net Buying' for the First Time in a While

[Image source=Yonhap News]

[Asia Economy Reporter Lee Seon-ae] The KOSPI, relieved from tightening pressures due to the slowing pace of interest rate hikes in the U.S. and South Korea, is maintaining its upward trend. In the afternoon, simultaneous net buying by foreigners and institutions has created a favorable supply-demand environment.

As of 1:43 PM on the 24th, the KOSPI is trading at 2435.60, up 0.73% from the previous trading day. The KOSDAQ is trading at 736.41, up 1.49%.

Both markets are seeing simultaneous net buying by foreigners and institutions. Foreigners have a buying advantage of approximately 15.5 billion KRW in the KOSPI market and about 77.5 billion KRW in the KOSDAQ market. Institutions are net buyers of 49.8 billion KRW and 55.9 billion KRW, respectively. Only individuals are net sellers, selling about 80.1 billion KRW and 118.9 billion KRW in the two markets, respectively.

The index is showing relief amid the slowing pace of interest rate hikes in the U.S. and South Korea. At this year's final Bank of Korea Monetary Policy Committee meeting, a baby step increase was decided, raising the base interest rate to 3.25%. This is the highest level in 10 years and 4 months since July 2012 (3.25%). The Bank of Korea Monetary Policy Committee stated, "It was decided to raise the base interest rate by 0.25 percentage points from the current 3% to 3.25%." Accordingly, the base rate will be maintained at around 3% until the next decision.

The Bank of Korea Monetary Policy Committee started raising the base rate from 0.5% in August last year and has increased it by a total of 2.75 percentage points to 3.25% as of this meeting. The market had already anticipated a baby step. Ki Young Han, a researcher at Kiwoom Securities, noted, "Since a 25bp increase was expected, the domestic stock market will now focus on changes in the economic outlook and monetary policy direction."

Overnight, the New York stock market also provided positive momentum. On the 23rd (local time), major U.S. stock indices closed higher as the Federal Reserve (Fed) hinted at slowing the pace of interest rate hikes. On the New York Stock Exchange (NYSE), the Dow Jones Industrial Average closed at 34,194.06, up 95.96 points (0.28%) from the previous session. The Standard & Poor's (S&P) 500 index closed at 4,027.26, up 23.68 points (0.59%). The tech-heavy Nasdaq index closed at 11,285.32, up 110.91 points (0.99%).

The market focused on the minutes of the Fed's Federal Open Market Committee (FOMC) meeting held on the 1st and 2nd. Some members stated, "If the Fed continues to raise rates aggressively at the current pace, there could be risks to the financial system, and slowing the pace of hikes could reduce the risk of financial instability." The minutes indicated that a majority of participants judged that slowing the pace of rate hikes would soon be appropriate. According to the minutes, many participants observed that monetary policy was approaching a sufficiently restrictive level to achieve the Fed's inflation target of around 2%, making a slowdown in pace appropriate. This suggested the possibility of slowing rate hikes from the end of this year into next year. As expectations grew that the magnitude of rate hikes would decrease in the coming months, investment activity continued.

Se Sang-young, a researcher at Mirae Asset Securities, commented, "The rise in the U.S. stock market, supported by a weaker dollar and falling Treasury yields, and the expectation that the Fed's terminal rate will be around 5% will have a positive impact on the Korean stock market."

However, a conservative investment strategy is recommended. Although the interest rate gap with the U.S. has narrowed to 0.75 percentage points following the Bank of Korea's rate hike, the key factor is the Fed's decision in December. If the Fed takes a big step (a 50bp hike) next month, U.S. rates will rise to 4.25-4.5%, expanding the gap to 1.25 percentage points again. An increased interest rate inversion between Korea and the U.S. could lead to foreign capital outflows. This could further weaken the Korean won, raising import prices and potentially triggering a vicious cycle of rising domestic consumer prices. Therefore, a conservative investment approach is necessary.

The researcher added, "While the easing of the Fed's tightening stance compared to before is welcome for market participants, much of this has already been priced in since October, so the positive impact of slowing the pace on the stock market may not be long-lasting."

He continued, "The FOMC minutes mentioned that the terminal rate needed to achieve the Fed's goals might be higher than previously thought (the median terminal rate in the September FOMC dot plot was 4.7% for 2023). The key factor influencing the stock market direction is not the pace of hikes but the terminal rate level and its duration, which supports previous forecasts."

Accordingly, considering that the market can intuitively gauge the terminal rate level from the dot plot presented at the December FOMC, it is advisable to prepare for a period of unclear market direction until that meeting.

Meanwhile, the top market capitalization stocks in the KOSPI are mixed. Samsung Electronics (0.33%), LG Energy Solution (1.25%), and Samsung Biologics (1.01%) are rising, while Kia (-0.45%) and Hyundai Mobis (-1.18%) are declining. In the KOSDAQ market, most stocks are rising. EcoPro BM (2.85%), Celltrion Healthcare (1.54%), L&F (3.36%), HLB (0.54%), and Kakao Games (2.89%) are all up.

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