KOSPI reacts favorably to G20 deal

By Kim Da-ye

Korean stocks hit a new record high for this year Monday after financial leaders from the Group of 20 agreed at the Gyeongju meeting to avoid competitive currency devaluations and cooperate to reduce trade imbalances.

The benchmark Korea Composite Stock Price Index (KOSPI) finished at 1,915.71, up 18.40 or 0.97 percent from Friday.

During the trading hours, the key index soared to 1,918.87, breaking the previous record of 1,909.01 on Oct 11. More than 399 million shares worth 6.46 trillion won were traded.

The Korean won dropped 6.7 won to 1,116.30 won against the U.S. dollar, and the yield on three-year national bonds rose 0.01 percent to 3.24 percent.

Analysts and economists agreed that the strong stock market rally was largely supported by improved investment sentiment as concerns over the potential impact of what was called a “currency war” partly cleared.

At the ministerial summit held over the weekend, finance ministers and central bank governors from the world’s leading economies said they will move away from competitive currency devaluations and toward market-determined exchange rate systems.

“There were concerns that the currency war could cause a crack in the cooperation (among leading economies). But the G20 ministerial meeting and the recent interest rate hike by China eased those concerns,” said Park So-yeon, an analyst at Korea Securities & Investment.

Park said that this trend in the stock market is likely to continue until the rate-setting Federal Open Market Committee meets in early November to discuss where and how much money the U.S. government is going to inject into the economy.

Shim Jae-youb, a strategist at Meritz Securities, agreed in his Monday report that foreign investment will flow into emerging markets as the foreign exchange market is expected to stabilize when emerging markets raise key interest rates as an exit strategy.

“As the Gyeongju ministerial meeting ended successfully, the expectations for the G20 Seoul Summit will increase. The possibility of balanced growth in the global economy can create positive momentum for the stock market,” wrote Shim.