Korean stocks bouncing back on Fed's dovish remarks

U.S. Fed Chairman Jerome Powell appears on a television screen on the floor of the New York Stock Exchange, Nov. 3. AP-Yonhap

Finance ministry to start emergency bond buyback

By Lee Min-hyung

The Korean stock market bounced back Thursday after the U.S. Federal Reserve Chairman Jerome Powell's dovish rhetoric relieved investors' anxiety about risky assets.

The rebound came in response to the Federal Open Market Committee's (FOMC) unanimous decision to start tapering the pace of its asset purchases in November. Powell also underscored the fact that the start of tapering does not signal an imminent interest rate hike.

The widely-predicted announcements from the Fed helped stabilize the Korean capital market. Powell's dovish remark is also expected to give the Bank of Korea (BOK) and financial authorities here more leeway in their policy-making.

The benchmark KOSPI closed at 2,983.22 points, up 0.25 percent from a day earlier, based on investors' revived sentiment toward the local stock market. The main bourse jumped to over 3,000 points at one time on Thursday morning on the reports from the Fed. Battery and tech stocks ― such as LG Chem and Samsung SDI ― extended their rally Thursday on overseas and institutional investors' return.

The secondary Kosdaq also started with a bullish run based on the Fed's dovish remarks, but it closed with a slight fall of 0.36 percent during the same period.

Starting from early October, the KOSPI had failed to defend the 3,000-point mark on widening fears over the Fed's early tapering. Stocks from not just Korea but other emerging markets had remained unstable for about a month.

But with the favorable FOMC comments, the local stock market has cleared away one external uncertainty that came as a major downward risk.

The Korean won also showed signs of gaining ground against the U.S. dollar on investors' preference for risky assets. The won-dollar exchange rate hovered below the 1,180-won range on Thursday morning, but closed with a gain of 1 won at 1,182.6 won per dollar.

“The result of the FOMC meeting was in line with market expectations, and international financial markets have shown stable patterns,” BOK Deputy Governor Park Jong-seok said after holding a meeting to analyze the impact of the Fed's decision.

But he also underscored the need to pay close attention to the future steps of the Fed amid lingering uncertainties ― such as the pace of tapering and the timeline for its rate hike ― due to growing inflationary woes here and abroad.

The central bank also hinted at the possibility of purchasing treasury bonds if the volatility of the local financial market increases.

Vice Minister of Economy and Finance Lee Eog-weon also said that the U.S. Fed's tapering would have a limited impact on the local financial market.

“The results from the FOMC will have a limited impact on the local market, but financial volatility may increase due to multiple overseas risk factors ― such as China's Evergrande crisis and the U.S. debt ceiling negotiations,” he said.

Lee also said that the ministry plans to buy back government bonds worth 2 trillion won ($1.7 billion) on Friday, in a move to stabilize the local bond market. According to data from the Korea Financial Investment Association, the three-year treasury bond yield surged to over 2 percent last week for the first time in about three years.

“Our emergency buyback plan will help improve market sentiment,” Lee said. “The financial authorities will also cooperate with the BOK in policy making to introduce market stabilization measures in a preemptive manner if the volatility continues to widen.”

Local economists have said that the Fed won't push for an early rate hike simply to keep inflation under control, and that the tapering risk appears to have been cleared away following the Fed's dovish announcement.

“We can conclude that the latest FOMC meeting was dovish, or at least neutral, in that it delivered a sense of relief to the market on issues surrounding the possibly early rate hike, and this is as opposed to the previous one in September, when the Fed sent a hawkish signal,” Hi Investment & Securities economist Park Sang-hyun said. “The dollar price also showed no visible fluctuation after the meeting, a sign that the tapering risk has been alleviated considerably,” he said.