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The Korea Herald
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THE INVESTOR
March 28, 2024

Market Now

Kospi hits 19-month low as US inflation skyrockets

  • PUBLISHED :June 14, 2022 - 09:27
  • UPDATED :June 14, 2022 - 09:27
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(123rf)

South Korea’s benchmark Kospi closed at 2,504.51 points Monday, its lowest level since Nov. 13, 2020 when it fell to 2,493.87 points, as investors priced in a big-step US rate hike amid a record annual increase in US consumer prices in May.

A month earlier, US consumer prices surged 8.6 percent on-year, the largest gain since 1981 on record-high gasoline prices and soaring food costs, fueling bets on a sharper rate hike than a half percentage point raise the US Fed had promised. The Fed’s two-day policy meeting starts on Tuesday.

“The Kospi will seesaw this week as the meeting is held,” said Seo Sang-young, head of the media contents department at Mirae Asset Securities.

“Persistently high inflation means an impending slowdown in US demand, which in turn is stoking growth worries. Foreign investors here are rattled,” Seo said.

Foreign investors, who currently hold roughly one-third of Korean stocks, were net sellers between January and May this year, having offloaded a combined 16.3 trillion won ($12.4 billion) in shares traded on the main board Kospi and junior Kosdaq.

Foreign and institutional investors carried on a sell-off Monday, outweighing a buying spree from retail investors. Shares of market bellwether Samsung Electronics closed at 62,100 won apiece, a new 52-week low, while tech companies like Naver and Kakao posted losses.

Local brokerages said the Kospi will hold out on a 2,500-point range, potentially sliding to as low as 2,400 points. Only a few firms are betting on an immediate rebound, taking the benchmark back to the 3,000-point range it last reached on Jan. 3 this year.

NH Investment & Securities said the benchmark would seesaw between gains and losses later in the year, reaching as low as 2,400 points and as high as 2,850 points. The projection was shared by rival companies, except for Samsung Securities and Korea Investment & Securities.

The two firms expected to see the main board returning to a 3,000-point range by year-end because inflation will have peaked well before, and investors will no longer be facing uncertainties from a clearly hawkish US Fed.

The Yoon Suk-yeol government is set to reveal this week an economic road map for the next five years for the first time since it came into office on May 10. The new economic plan could provide growth momentum, Samsung Securities and Korea Investment & Securities added.

Ahead of the announcement, President Yoon, who has long championed business-friendly rules, reiterated deregulation efforts Monday as Asia’s fourth-largest economy looks to avoid anemic growth.

Concerns over stagflation -- a blend of low growth and high prices -- are pushing Korea to back aggressive policy tightening to cool the highest inflation in years. The Organization for Economic Cooperation and Development has said consumer price increases in Korea for this year will hit a 24-year high.

The Bank of Korea has already lifted interest rates three times this year, doing so at every policy meeting except for the one in February -- a decision experts say demonstrates the central bank’s determination to alleviate the increasing price burden on consumers.

The central bank, which has raised interest rates by 1.25 percentage points in five stages since July last year from the record low of 0.5 percent to 1.75 percent, is expected to lift borrowing costs in July.

By Choi Si-young (siyoungchoi@heraldcorp.com)

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