[MarketING] KOSPI Falls Below 2560 Amid Institutional and Foreign Selling

KOSPI Closes Lower, Falls Below 2560
KOSDAQ Also Drops Below 850

The KOSPI closed lower, falling back to the 2550 level. The KOSDAQ also gave up the 850 level. Amid uncertainty over the U.S. debt ceiling acting as downward pressure, institutional and foreign selling emerged, pulling the indices down. The Bank of Korea's downward revision of this year's economic growth forecast also appeared to weigh on the market.

KOSPI's Winning Streak Pauses, Hesitates for Second Day... Falls Below 2560

On the 25th, the KOSPI closed at 2554.69, down 12.76 points (0.50%) from the previous day. The KOSDAQ ended the session at 847.72, down 7.74 points (0.90%).

[Image source=Yonhap News]

Institutional and foreign selling pressured the indices downward. On that day, institutions net sold 589.3 billion KRW in the KOSPI market and 87.8 billion KRW in the KOSDAQ market. Foreigners net bought 205.6 billion KRW in the KOSPI market but recorded sales of 716.6 billion KRW in the futures market and also sold 117 billion KRW in the KOSDAQ market. Individuals were the only net buyers, purchasing 376.9 billion KRW in the KOSPI market and 204.4 billion KRW in the KOSDAQ market, but it was insufficient to prevent the index decline.

Only semiconductors showed strength, buoyed by Nvidia's strong earnings. Samsung Electronics closed at 68,800 KRW, up 0.44% from the previous day. It rose more than 1% during the session but the gains narrowed. SK Hynix closed at 103,500 KRW, up 5.94%, regaining the 100,000 KRW level for the first time since July last year. On that day, foreigners were the largest net buyers of SK Hynix with 266.5 billion KRW, followed by Samsung Electronics at 76.6 billion KRW. Considering the scale of foreign net buying in the KOSPI market, buying was concentrated on these two stocks. Seokhwan Kim, a researcher at Mirae Asset Securities, explained, "Most of the foreign net buying in the spot market that day flowed into Samsung Electronics and SK Hynix," adding, "Since the beginning of the year, foreigners have net bought 9.4 trillion KRW in the domestic stock market, with 9.6 trillion KRW concentrated in the semiconductor sector."

There is a forecast that the semiconductor concentration phenomenon may intensify. Yujun Choi, a researcher at Shinhan Investment Corp., said, "Recently, foreign demand has shown a preference for the semiconductor sector rather than a positive view of the overall stock market," adding, "If the index's upside is limited, the semiconductor concentration is likely to strengthen further." He also added, "To rebound the index, it is necessary to first resolve the debt ceiling negotiations and look for hints about the June Federal Open Market Committee (FOMC) in the May U.S. employment data."

Debt ceiling negotiations are facing difficulties, acting as a source of market instability. International credit rating agency Fitch assigned the U.S. sovereign credit rating as AAA but designated it as a "negative watch" subject to possible future downgrade related to the risk of federal government default.

The Bank of Korea's downward revision of the economic growth forecast also weighed on sentiment. The Bank of Korea held a Monetary Policy Committee meeting that day and kept the base rate steady at 3.5% per annum. Since the market had anticipated the rate freeze, the rate decision itself had little impact on the stock market, but lowering this year's economic growth forecast from 1.6% to 1.4% dampened investment sentiment.

With the rate freeze, the won-dollar exchange rate rose. In the Seoul foreign exchange market that day, the won-dollar exchange rate closed at 1,326.0 KRW, up 8.6 KRW from the previous day, climbing back above the 1,320 level.

Rate Freeze Expected Through Year-End

With the Bank of Korea freezing the base rate for the third consecutive time following February and April, the market expects the final rate of this tightening cycle to be 3.5%.

Jaegyun Lim, a researcher at KB Securities, said, "The possibility of a rate cut within the year is still considered low," adding, "The Bank of Korea lowered this year's economic growth forecast from 1.6% to 1.4%, and while the market expects a rate cut due to economic slowdown, the key factor for rate cuts is inflation. Since inflation falling further below the 3% range is uncertain, considering the observation of inflation slowdown, the timing of a rate cut is likely to be in the second quarter of next year."

However, there are also opinions that expectations for a rate cut within the year are not excessive. Yunmin Baek, a researcher at Kyobo Securities, said, "Governor Lee mentioned that all Monetary Policy Committee members have left open the possibility of further rate hikes up to 3.75%, but this should be seen as merely mentioning a possibility," adding, "Regarding inflation, what should be noted is that the precondition for a rate cut is not that inflation is at 2%, but the confidence that inflation can converge to 2%. Therefore, if inflation does not deviate significantly from the Bank of Korea's forecast path, demands for easing monetary tightening will increase amid downward economic pressure and expanding financial instability."

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