Value context and insight. lkm@koreatimes.co.kr
Stock markets expected to see mild upturn
By Lee Kyung-min
By Lee Kyung-min
The Seoul financial market is expected to continue a moderate upward trend for a while on the back of a recent dovish turn from the U.S. Federal Reserve, market analysts said Friday.
They also expect the Korean won to gain ground against the U.S. dollar. The won has been weakening against the greenback over the past few months due to economic slowdown and the Bank of Korea's key rate staying below the Fed's benchmark interest rate.
“The stock market is enjoying the U.S. Fed chairman's dovish remarks, a long-awaited signal to boost investment sentiment,” KB Securities analyst Kim Young-hwan said.
The assessment came after the rate-setting Federal Open Market Committee (FOMC) kept its base rate unchanged at 2.25 percent to 2.50 percent on June 19 while signaling possible cuts down the road citing a weakening economic environment.
“Many participants now see the case for somewhat more accommodative policy has strengthened,” Fed Chairman Jerome Powell said.
The financial markets in the U.S. and China rallied following the Fed's rate cut signals.
“The thing about the U.S. interest rate cut? It is about when, not if,” Kim said.
“The 25 basis points cut is now a sure thing, and the question is whether it will further brave a 50 basis points cut ― not to mention the futures market already having moved upwards.”
The benchmark KOSPI closed at 2,125.62 Friday, down 0.27 percent from the previous close. But the figure was up by over 100 points from late May when it hovered around 2,000.
The Korean won closed at 1,164.0 against the U.S. dollar, down 2 won from a day earlier following a three-day winning streak from June 18 to 20, when it gained 24.5 won to 1,161.5 won against the dollar.
Analysts said that the latest development has essentially created a buffer against a sudden, unexpected fall, and the market is expected to continue without major fluctuations.
“The KOSPI will move within a stable range between 2,000 and 2,250 for some time. That is unless of course a shock ensues.”
The Fed effect also extended to the foreign exchange market, leading the Korean won to shoot up.
“The U.S. interest rate cut has now become a reality. The U.S. dollar has since been on decline, leading to a jump of the won,” said Moon Jung-hiu, a senior economist at KB Securities.
“While the won has soared recently to 1,160 won against the U.S. dollar, it will hover around 1,170 won for a while.”
With the G20 meeting looming, the seemingly escalating U.S.-China trade dispute over tariffs will not have any significant impact in the short term, the two agreed.
“The two leaders will meet on the sidelines of the G20 on June 28 and 29, but no immediate tariff measures will take effect given precedents whereby at least a 45-day grace period was allowed. The stock market will see a limited impact,” Kim said.
Moon echoed that view, saying the foreign exchange market has already taken those factors into account.
“We do not expect any significant deal will be reached, nor do we consider the possibility high that additional tariffs will be imposed,” Moon said.