[MarketING] Stock Market Blocked by the 'Wall of Worries'

KOSPI and KOSDAQ Close Lower for 3rd Day
Unpredictable Political and Diplomatic Risks Must Be Watched

The stock market closed lower for the third consecutive day. The KOSPI fell to the 2520 level, and the KOSDAQ dropped to the 850 level. Amid the weakness of the Korean won and the emergence of profit-taking sales weighing on the indices, recent concerns about economic slowdown combined with political and diplomatic conflicts have raised the 'wall of worries' surrounding the stock market.

KOSPI closes lower for 3 consecutive days... falls to the 2520 level

On the 24th, the KOSPI closed at 2523.50, down 20.90 points (0.82%) from the previous day. The KOSDAQ ended the session at 855.23, down 13.59 points (1.56%).

[Image source=Yonhap News]

As the Korean won continued to weaken, foreign investors showed a selling trend. In particular, in the KOSDAQ market, foreign investors continued selling for six consecutive trading days, unloading profit-taking shares. On this day, foreign investors net sold 34.5 billion KRW in the KOSPI market and 24.8 billion KRW in the KOSDAQ market. Institutions and individuals showed mixed movements. Institutions net bought 104.2 billion KRW in the KOSPI market but sold 117 billion KRW in the KOSDAQ market. Individuals net sold 81 billion KRW in the KOSPI market and purchased 174.8 billion KRW in the KOSDAQ market.

The sharp rise in the USD/KRW exchange rate acted as downward pressure on the indices. On this day, the USD/KRW exchange rate closed at 1,334.8 KRW, up 6.6 KRW from the previous trading day in the Seoul foreign exchange market, setting a new yearly high.

Kim Seok-hwan, a researcher at Mirae Asset Securities, analyzed, "Both the KOSPI and KOSDAQ declined, but especially in the KOSDAQ, the downward pressure on the index intensified due to sharp drops caused by individual stock supply and demand issues." He added, "The caution ahead of this week's U.S. Big Tech earnings and major economic indicator announcements also contributed to the burden." He further explained, "Due to the U.S. economic data releases and concerns over additional interest rate hikes, emerging market currencies weakened, and foreign selling expanded, causing the USD/KRW exchange rate to surge more than 8 KRW intraday, reaching the highest level of the year."

There are opinions that the 'wall of worries' surrounding the stock market is rising as recent economic slowdown concerns are compounded by political and diplomatic risks. While concerns about a U.S. recession persist, anxiety over the U.S. debt ceiling negotiations is increasing. Park Sang-hyun, a researcher at Hi Investment & Securities, said, "The political risk wall in the U.S. is rapidly rising." He analyzed, "The sharp rise in the U.S. credit default swap (CDS) premium reflects anxiety over the debt ceiling negotiations. Although there is still time for negotiations, the longer the delay in reaching an agreement, the greater the market's fear of a default event will become." He added, "The problem is that while the debt ceiling negotiation is an economic issue, the ball has now moved to the political arena, so unexpected situations may unfold."

Political and diplomatic conflicts unpredictable... Heightened caution needed

In particular, issues related to China are expected to have a greater impact on the domestic stock market, so it will be necessary to closely monitor the situation.

Recently, relations between South Korea and China have rapidly cooled following President Yoon Seok-yeol's remarks related to Taiwan. Researcher Park said, "The domestic financial market is experiencing amplified instability in the Korean won's value as the wall of worries both domestically and internationally rises." He added, "The China-related risks, which combine economic and diplomatic risks, need to be viewed not only from a short-term perspective but also from a mid- to long-term viewpoint. In other words, the rapid changes in South Korea's export shares to China and the U.S. have significant implications for the domestic economy and financial markets." Park also analyzed, "Furthermore, the economic security alliance between South Korea and the U.S., to be discussed at the upcoming South Korea-U.S. summit, along with the direction of regulatory exemptions for Korean semiconductor factories in China, which are set to expire at the end of September, will have considerable effects on the domestic semiconductor industry cycle."

Earlier on the 21st, Chinese-related consumer stocks showed consecutive weakness due to the cooling of South Korea-China relations. On this day as well, Amorepacific fell 0.96%, and Hotel Shilla dropped 0.64%. Han Ji-young, a researcher at Kiwoom Securities, said, "Political and geopolitical uncertainties with Russia and China are highlighted ahead of the South Korea-U.S. summit on the 26th, including government remarks on military support for the Ukraine war and warnings against attempts to change the status quo by force regarding China-Taiwan relations. These factors have acted as sources of anxiety, causing stocks related to China's economic recovery to turn weak."

There is an opinion that political and diplomatic risks require caution due to their unpredictability. Researcher Park explained, "While the wall of worries related to the economy may not be higher than concerns, the wall of worries caused by various political and diplomatic conflicts is unpredictable regardless of its height, so caution is necessary."

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