KOSPI shows decreased pattern of mimicking US stocks

An electronic board shows a drop in the benchmark KOSPI at Hana Bank's headquarters in Seoul, Wednesday. Yonhap

Korean economy under China-led inflationary pressure: BOK

By Lee Min-hyung

The benchmark KOSPI is displaying a weaker pattern of mimicking major Wall Street indices at the end of the year due to a strengthening dollar and prolonged global supply bottlenecks.

Despite high hopes of a “Santa Claus rally” until now, the main bourse has shown less than stellar performance during the second half of 2021. This was in contrast to the S&P 500, which achieved a major rebound this year by surging 27.6 percent as of Dec. 27, compared to the beginning of this year. The KOSPI, however, grew only around 5 percent during the same period.

While key stock indices from the world's largest economy reported stable growth throughout this year, this was not the case for the KOSPI and the junior Kosdaq.

The weaker-than-expected performance is attributable to investors' preference for safer assets due to uncertainties compounded by the COVID-19 pandemic. Investors stocked up on safe-haven U.S. dollars, which pushed up the valuation of the greenback, while the Korean currency weakened to around 1,200 won per dollar as the year-end approaches. Earlier this year, the Korean won was worth around 1,100 won against the dollar, but has since failed to enhance its valuation against the greenback.

Longer-than-expected supply bottlenecks also exerted downward pressure on Korea's major export-driven large-cap companies this year, resulting in escalating the decoupling between the Korean and U.S. stock markets.

Market analysts, however, expressed hopes for the main bourse to close the gap and regain momentum for a rally in 2022.

“The U.S. stock market has reached its historical peak, while that of Korea stands at a low level,” Yuanta Securities analyst Cho Byung-hyun said.

The Korean stock market still has a comparative edge in terms of fundamentals, so it can expect positive growth in 2022 amid ample liquidity in the global asset market, according to the analyst.

For instance, major large-cap stocks in manufacturing industries ― such as semiconductor, automobile and chemical companies ― have shown weak performance this year due to the global supply-chain disruptions.

Shares of Samsung Electronics, the most valuable company in Korea in terms of market capitalization, have been on the decline for the past year and closed at 78,800 won on Wednesday. Samsung shares extended a bullish run between December 2020 and January this year when it topped 90,000 won.

Shares of LG Chem also experienced a plunge throughout 2021. LG Chem shares rose to 1.05 million won in mid-January, but have fallen by around 40 percent and closed at 628,000 won on the main bourse, Wednesday.

The KOSPI ended with a loss of 0.89 percent at 2,993.29 points compared to a day earlier, while the Kosdaq inched up 0.06 percent and closed at 1,028.05 points, according to data from the Korea Exchange.

Mirae Asset Securities expected Korea's stock market to enter a major adjustment period in the second quarter of 2022 when the U.S. Federal Reserve is scheduled to end its quantitative easing.

“We forecast the Korean stock market to face an adjustment by that time, as investors are becoming more cautious over the Fed's rate hikes soon after it finishes the bond-buying campaign,” Park Hee-chan, head of the securities firm's global asset allocation team, said.

Escalating concerns over inflation also comes as another fear factor for the Korean stock market.

The Bank of Korea (BOK) said the Korean economy will face heightened inflationary pressure if product prices in China continue to rise faster.

“If China's producer price index keeps a high level of increase over a long period of time, this will result in an upward pressure on prices in Korea as well,” the BOK said in a report.

The price increase of intermediate goods imported from China will pose a cost burden to Korean firms when they manufacture end products here, so chances are that the Korean economy will continue facing additional inflationary pressure due to the China factor, according to the report.