Are Korean stocks heading toward a bear market?

U.S. Fed chairman Jerome Powell addresses an online only news conference in a frame grab from U.S. Federal Reserve video broadcast from the Federal Reserve building in Washington, Jan. 26. U.S. Reuters-Yonhap

Foreigners engaging in selling spree for 7 trading days

By Lee Min-hyung

The Korean stock market will continue to be trapped in a phase of adjustment amid the U.S. Federal Reserve’s recent announcement of earlier rate hikes, but its impact is expected to be short-lived, analysts said Friday.

This is because Fed Chairman Jerome Powell’s hawkish remarks that the authority will start raising its key rate as early as March cleared away uncertainties and rumors prevalent in the market to some extent, they said.

The benchmark KOSPI displayed heavy fluctuation on Friday, but managed to gain some ground closing at 2,663.34, up 1.87 percent from the previous session. The secondary Kosdaq also closed with a bigger gain of 2.78 percent during the same period. This was in part due to the subdued uncertainty on the market following the two-day-long Federal Open Market Committee meeting.

Considering overnight declines on Wall Street, the Korean equity market performed better than expected. The S&P 500 fell by 23.42 points or 0.54 percent, Thursday, and the Nasdaq also extended loss with a drop of 1.4 percent on the same day.

Despite the slight recovery of Korean shares, investors remain nervous over the recent decline in the local equity market. The main bourse has fallen by around 10 percent since the beginning of 2022 on a selling spree by foreign investors. For the past seven consecutive trading days until Friday, those investors were consistently dumping Korean shares.

“We do not have to consider the Fed’s hawkish announcement as a negative factor in that this removed rumors and provided a major turning point (for investors) to change their way of thinking,” eBest Investment & Securities analyst Choi Kwang-hyuk said.

“Even if the Fed’s shift to monetary tightening is not a positive signal and escalating geopolitical risks also add inflationary pressure, it is hard for us to say that the latest announcement from the Fed veered from the market’s expectation.”

But a series of other indices showed that investors’ preference for safer assets is showing signs of deepening following the aggressive signal from the U.S. authority. Stocks that guarantee stable dividend offerings ― such as financial issues ― are also attracting attention from investors. Major Korean financial shares ― such as KB, Shinhan, Hana and Woori ― jumped Friday on reviving confidence from the market.

The Korean currency weakened further against the dollar on Friday, closing at 1,205.5 won per dollar, which is the highest level seen in the last 18 months. This is an increase of 2.7 won from a day earlier. The price of gold has also been on a gradual rise for the past three months when uncertainties over the timeline of the Fed’s rate hikes escalated jitters on the global financial market.

Other economists pointed out that market volatility will continue until February before the Fed holds the next FOMC meeting in March.

“Uncertainties over the Fed’s monetary policy will continue to be reduced, but other factors ― such as the spread of the Omicron variant of COVID-19 and geopolitical risks ― are expected to keep weighing on the global financial market throughout February,” IBK Investment & Securities analyst Jeong Yong-taek said.

The surge of COVID-19 infection cases here and abroad will particularly come as a burden to investors at least for the next few weeks, so they are advised to take a more conservative attitude than before, he said.

According to data from the Korea Disease Control and Prevention Agency, the number of coronavirus cases set a daily high of more than 16,000 on Friday. The figure has been on a rapid rise this week.

“If other countries reintroduce a series of lockdown measures amid reviving concerns on the spread of the virus, this is feared to worsen China’s supply bottlenecks, which will increase inflationary woes for the global economy,” he said. “Considering such external risks, market participants should take a very careful and conservative attitude before making investments.”