Less hawkish Fed expected to boost Santa rally on KOSPI

An employee at Hana Bank's dealing room in Seoul is seen in front of an electronic board that shows a slight loss on the benchmark KOPSI, Friday morning. Yonhap

By Lee Min-hyung

A year-end “Santa Claus rally” is expected to push the benchmark KOSPI higher, as “predictable” hawkish rhetoric from the U.S. Fed has cleared away investors' jitters on the local stock market, analysts said Friday.

Until recently, the local equity market was grappling with widening uncertainties surrounding the Fed's abrupt shift in favor of an earlier end to tapering amid growing inflationary concerns.

But with the Federal Open Market Committee (FOMC) meeting finishing in line with the market's earlier expectations, experts said the local stock market will face little volatility over the near-term as it is positioned to fully digest uncertainty regarding the FOMC meeting and achieve a rebound as the year-end approaches on hopes for the Santa rally that refers to a rise in stock prices in the last week of December.

Analysts said Korean value stocks would continue their year-end rally on weakened external uncertainties after the FOMC meeting. Growing hopes that the Chinese government will introduce a more aggressive stimulus package is another factor helping rev up the Korean stock market.

The main bourse closed with a slight gain of 0.38 percent Friday to end at 3,017.73, topping the symbolic 3,000-point mark. This was driven by somewhat less hawkish rhetoric from Fed Chairman Jerome Powell. Following the FOMC meeting, Bank of Korea (BOK) Governor Lee Ju-yeol said the FOMC's impact on the local equity market would be limited because it did not hint at any drastic policy shift.

While the continued spread of the Delta and Omicron variants of COVID-19 has been creating negative sentiment, chances are slim that this will result in serious downward pressure on the KOSPI in the near-term, experts said.

Also, investors are focusing more on moves by major central banks with their monetary policy updates and a clearer outlook regarding rate changes, and the level of their accelerated moves rather than focusing on near-term growth outlooks.

“The recent FOMC meeting helped relieve fear sentiment prevalent on the market. As the result was in line with earlier market expectations riskier assets will go on a relief rally,” Meritz Securities analyst Lee Seung-hoon said.

“In Korea, large-cap export stocks ― such as IT and automobiles ― will continue their rally, and others in the area of food and telecommunications are also showing signs of bouncing back,” Lee Woong-chan, an analyst at Hi Investment & Securities, said.