KOSPI Eases on Interest Rate Hike Slowdown... Amid Gains, Only Individuals Sold Again

[Image source=Yonhap News]

[Asia Economy Reporter Lee Seon-ae] The KOSPI, relieved from tightening pressure amid the US and South Korea's interest rate hike pace adjustments, reclaimed the 2440 level to close higher. The supply-demand environment was also supported by simultaneous net buying from foreigners and institutions. Meanwhile, only individual investors showed a 'sell' trend.

On the day, the KOSPI started trading at 2437.51, up 19.50 points (0.81%). The KOSDAQ also opened higher at 729.41, up 3.82 points (0.53%). Following the overnight positive momentum from the New York stock market, the market maintained an upward trend throughout the day as uncertainties eased due to the Bank of Korea's Monetary Policy Committee's decision on a 'baby step' (a 25bp increase at once) in the base interest rate. The KOSPI closed at 2441.33, up 23.32 points (0.96%) from the previous session. Although it briefly dipped below the 2430 level in the morning, it rose above 2440 in the afternoon, supported by simultaneous net buying from foreigners and institutions. The KOSDAQ closed at 738.22, up 12.63 points (1.74%) from the previous session.

The positive close of the New York stock market led to a favorable start for the domestic market. The release of the Federal Reserve's (Fed) Federal Open Market Committee (FOMC) meeting minutes from June 1-2 revealed that the majority of members agreed on slowing the pace of interest rate hikes, improving investor sentiment. According to the minutes, most attendees anticipated that monetary policy was approaching a sufficiently restrictive level to achieve the Fed's inflation target of around 2%, making a slowdown in the pace appropriate going forward. This suggested that the pace of rate hikes could slow from the end of this year into next year, raising expectations for smaller rate increases in the coming months.

Seosangyoung, a researcher at Mirae Asset Securities, noted, "The US stock market's rise, supported by a weaker dollar and lower Treasury yields, along with the Fed's terminal rate forecast of 5%, positively influenced the Korean stock market."

During the morning session, the Bank of Korea's baby step was decided. The last Monetary Policy Committee meeting raised the base rate by 25bp to 3.25%, the highest level in 10 years and 4 months since July 2012 (3.25%). Accordingly, the base rate will be maintained around 3% until the next decision.

The Bank of Korea's Monetary Policy Committee has raised the base rate by a total of 2.75 percentage points from 0.5% in August last year to 3.25% on this day. The market had already anticipated the baby step. Kim Seok-hwan, a researcher at Mirae Asset Securities, analyzed, "Expectations for a slowdown in US rate hikes and the Bank of Korea's 25bp increase led to a stronger won, supported by foreign buying, resulting in a bullish trend."

Simultaneous net buying by foreigners and institutions in both markets created a favorable supply-demand environment. Foreigners showed net buying of approximately 127 billion KRW in the KOSPI market and about 120.3 billion KRW in the KOSDAQ market. Institutions net bought 66.3 billion KRW and 99.8 billion KRW, respectively. Only individual investors were net sellers, offloading about 217.8 billion KRW and 208.3 billion KRW in the two markets, marking their third consecutive day of selling.

Looking at the KOSPI sector status, paper and wood (3.09%), electric and gas utilities (1.71%), and machinery (1.49%) sectors showed gains. Conversely, telecommunications (-0.30%) declined. In the KOSDAQ sectors, entertainment and culture (5.68%), lodging and food services (3.77%), and IT hardware (2.13%) rose, while mining (-0.44%) fell.

Among the top market capitalization stocks, LG Chem (3.85%), Naver (3.58%), and Kakao (3.05%) stood out in the KOSPI market, while Cheonbo (3.86%), L&F (3.55%), and EcoPro BM (3.32%) were notable in the KOSDAQ market.

Additionally, Samsung Electronics and SK Hynix rose 0.66% and 2%, respectively, buoyed by positive momentum from the US. This was interpreted as influenced by the Philadelphia Semiconductor Index rising 1%.

Meanwhile, investment strategies are recommended to be conservative. Although the interest rate gap with the US 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, US rates will reach 4.25-4.5%, widening the gap to 1.25 percentage points again. An expanded interest rate inversion between Korea and the US could lead to foreign capital outflows. This may also intensify won depreciation, raising import prices and potentially triggering a vicious cycle of rising domestic consumer prices. Therefore, a conservative investment strategy is required.

Han Ji-young, a researcher at Kiwoom Securities, stated, "Attention should be paid to the fact that the FOMC minutes mentioned the terminal rate needed to achieve the Fed's target might be higher than previously thought (the median terminal rate in the September FOMC dot plot was 4.7% for 2023)." She emphasized, "The existing forecast that the key issue affecting market direction is not the pace adjustment but the terminal rate level and its duration remains valid." She added, "Considering that the market can intuitively gauge the terminal rate level from the dot plot presented at the December FOMC, it is appropriate to prepare for unclear market direction until that meeting."

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