Lee Min-hyung joined The Korea Times in 2014 and has worked as a journalist mainly in Korea’s finance, tech and automotive industry. He specializes in content creation, breaking news and in-depth analysis currently on transportation and mobility. You can reach him via mhlee@koreatimes.co.kr.
KOSPI to enjoy additional rally amid exchange rate fall
Electric boards set up at a dealing room of Hana Bank in Seoul show the rise of the main bourse and the falling won-dollar exchange rate, Friday. Yonhap
By Lee Min-hyung
By Lee Min-hyung
The declining won-dollar exchange rate will continue to push the benchmark KOSPI higher at least until the first quarter of 2021 by attracting more foreign capital here, market experts said Friday. Last week, the KOSPI set a record high of 2,731.45 points, according to data from the main bourse operator the Korea Exchange (KRX).
They expected the local currency to continue gaining more ground against the dollar amid expectations that U.S. President-elect Joe Biden will introduce more robust stimulus packages to help his country's coronavirus-hit economy recover, which bodes well for Korean stock markets.
“The falling won-dollar exchange rate is one of the key factors inducing the foreign capital influx,” said Korea Capital Market Institute economist Hwang Sei-woon.
The main bourse hit an all-time high of 2,700 points at one point, Friday. Given the lingering possibility over additional exchange rate falls, the KOSPI will likely pick up more steam in the foreseeable future, according to Hwang.
“The foreign capital influx will continue throughout the year and possibly through the first quarter of next year, as the Biden administration gives repeated signals of adopting a strong set of pump-priming measures,” he said.
“This will increase investors' preference for risky assets, such as Korea's local currency and stocks, as opposed to the U.S. dollar.”
Investors will also likely pay more attention to risky assets amid growing hopes over the efficacy of COVID-19 vaccines under development, he added.
“The vaccine development will speed up the economic rebound across the globe, and under such hopes, Korean stocks will attract more attention from foreign investors who are likely to opt for risky bets on stocks from emerging markets,” Hwang noted.
The exchange rate closed at 1,097 won per dollar Thursday, the first time in two-and-a-half years that the closing figure fell below 1,100.
Some commentators predict the rate may decline to around 1,000 won in consideration of the stance of the Biden administration. The won was traded at 1,008.5 won per dollar on July 3, 2014, the lowest since the 2008 global financial crisis.
“My view is that demand for Korean stocks and the local currency remains strong enough for the time being and foreign investors will keep purchasing local stocks and push additional growth of the main bourse,” Hwang said.
The economist expects the KOPSI to set a record of at least 2,900 points by the end of next March.
Hyundai Motor Securities economist Kim Joong-won agreed that the exchange rate was a key factor determining the KOSPI rally.
“When the global economy is on track for recovery, this generally drives down the won-dollar exchange rate and improves Korea's exports,” he said.
But if the rate falls below the 1,050-won range, this could end the ongoing rally.
“When the figure drops below that level, concerns are that export-driven companies' profitability weakens,” he said.
Major brokerages here are also revising upward KOPSI's growth outlook for next year to around 2,700 to 2,850 points. Heungkuk Securities had one of the most optimistic outlooks for KOSPI, expecting the main bourse to top the symbolic 3,000 in 2021.