This Week's KOSPI... FOMC Caution and King Dollar: "Will It Slide Down to 2300?"

On the 16th, when the won-dollar exchange rate started to rise, dealers were working in the dealing room of Hana Bank in Euljiro, Seoul. Photo by Mun Ho-nam munonam@

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[Asia Economy Reporter Lee Seon-ae] This week, the KOSPI is expected to experience increased volatility as caution spreads ahead of the U.S. Federal Open Market Committee (FOMC) meeting. Securities firms generally set the expected range between 2300 and 2450 points. If volatility peaks and the market slips, it could fall as low as the 2300 level. The September FOMC meeting will be held over two days, September 20-21 (local time). The Federal Reserve (Fed) is expected to raise rates by 75 basis points (1bp = 0.01 percentage point) at this FOMC.

According to the Korea Exchange on the 18th, the KOSPI closed at 2382.78 on the last trading day of last week, the 16th, down 19.05 points (0.79%) from the previous day. Volatility expanded as concerns over tightening grew following a higher-than-expected August Consumer Price Index (CPI) increase. The possibility of a third consecutive giant step (a 0.75 percentage point rate hike) at the September FOMC has increased significantly. Accordingly, the KOSPI started last week at 2384.28 and ended at 2382.78. After a sharp rebound on the first trading day following the Chuseok holiday on the 13th (2449.54, +65.26), the market fell for three consecutive trading days, resulting in large fluctuations.

Securities firms view the giant step as likely as expected, but there is analysis that the market could fluctuate again due to concerns that tightening may be prolonged beyond the rate hike level.

Kim Young-hwan, a researcher at NH Investment & Securities, said, "The stock market is partially reflecting both a 75bp rate hike and a 100bp hike by the Fed," adding, "Regardless of the decision, the market will likely fluctuate once based on the outcome." The possibility of an upward revision of the year-end benchmark rate forecast at the FOMC is also a burden. Previously, the Fed presented a 3.75% year-end benchmark rate for 2023 in the June FOMC dot plot. This was interpreted as the final level of rate hikes, but securities firms analyze that considering the current CPI level, there is significant room for an upward revision to 4.5% by year-end.

The continued high exchange rate is also negative for the stock market. Securities firms expect the won-dollar exchange rate to move between 1310 and 1400 won this week. The level is increasingly seen as a burden ahead of the psychological resistance level of 1400 won.

Meanwhile, major diplomatic events that could impact the stock market are scheduled. From the 15th to the 17th, Li Zhanshu, Chairman of the Standing Committee of the National People's Congress of China, will visit Korea to discuss the Korea-China summit, THAAD, and supply chains. President Yoon Seok-yeol will tour the UK, the U.S., and Canada from the 18th to the 24th, holding Korea-U.S. and Korea-Japan summits.

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