[MarketING] Strengthened Dollar, Foreigners Turning Away

KOSPI Closes Lower Below 2430
Foreigners Turn to Selling in KOSPI After 6 Trading Days
Dollar Strength Expands Foreigners' Profit-Taking Sentiment

[Image source=Yonhap News]

[Asia Economy Reporter Song Hwajeong] The KOSPI fell below the 2430 level amid concerns over prolonged tightening due to a slowdown in the decline of inflation. With foreigners turning to selling after six trading days, if the dollar continues to strengthen, foreigners' desire for profit-taking is also expected to intensify.

KOSPI Falls Below 2430 Level Due to Foreign and Institutional Selling

On the 15th, the KOSPI closed at 2427.90, down 37.74 points (1.53%) from the previous day. The KOSDAQ ended the session at 765.46, down 14.12 points (1.81%). The KOSPI broke below the 2430 level, and the KOSDAQ fell below the 770 level.

Selling pressure from institutions and foreigners dragged the indices down. On this day in the KOSPI market, institutions sold 778.8 billion KRW, and foreigners sold 269.9 billion KRW. Although individuals alone bought 1.0183 trillion KRW, it was insufficient to defend the indices. Notably, foreigners turned to selling after six trading days.

Kim Seokhwan, a researcher at Mirae Asset Securities, analyzed, "The KOSPI and KOSDAQ showed weakness reflecting concerns that tightening policies could be prolonged following the higher-than-expected U.S. Consumer Price Index (CPI) announcement. Profit-taking from the previous day's rise and expanding selling by foreigners and institutions in the afternoon increased downward pressure on the indices." He added, "The won-dollar exchange rate also rose nearly 14 won during the session, reducing risk appetite."

Due to inflation and tightening concerns, the won-dollar exchange rate surged past 1280 won. In the Seoul foreign exchange market, the won-dollar rate closed at 1282.2 won, up 12.8 won from the previous session. During the session, it soared to 1284.7 won.

The dollar's strength is expected to expand foreigners' desire for profit-taking. Lee Kyungmin, a researcher at Daishin Securities, said, "Foreigners have bought 8 trillion KRW in a short period, reaching a peak in short-term buying intensity. Recently, the won's weakness against the dollar is rebounding sharply after an undershoot, and the won's strength phase against the dollar that lasted since October is ending, likely entering a relatively weak phase." He added, "If the won's relative weakness against the dollar becomes pronounced, it will have a negative impact on foreign investor sentiment."

Focus on U.S. January Retail Sales and Industrial Production

Following the U.S. January CPI announcement the previous day, January retail sales and industrial production are scheduled to be released, shifting market participants' attention to the real economy.

Both retail sales and industrial production are expected to show recovery. January retail sales are forecasted to grow 1.9% month-on-month, breaking away from two months of contraction (December -1.1%, November -0.6%). Mining and manufacturing production are also expected to rebound by 0.5% and 0.8% respectively, reversing the declines in December (-0.7%, -1.3%) to an upward trend.

With confirmation that the pace of inflation decline is slowing, if real economy indicators show recovery, expectations for prolonged tightening are likely to gain more weight. Lee said, "The global financial market will accept the results of a rebound in real indicators such as consumption and production, and a slowdown in the pace of inflation decline. In this case, expectations for a soft landing may increase, but expectations for rate cuts will inevitably retreat once more."

Ryu Jin-yi, a researcher at Hi Investment & Securities, said, "If strong demand based on a robust labor market is confirmed in the U.S. January retail sales released today, expectations for the end of rate hikes could shift from May to June."

As economic indicators are confirmed, the market's premature optimism is expected to calm down. Labor Gil, a researcher at Shinhan Investment Corp., said, "With solid employment and real indicators supporting U.S. consumer sentiment, concerns about prolonged tightening and expectations for a soft landing will be reflected simultaneously. This will be a period to absorb short-term upward pressure due to Fed-driven disinflation and expectations for rate cuts within the year." He added, "If the Fed shifts to a hawkish stance after confirming strong economic indicators, expectations for monetary easing will somewhat subside."

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