Seoul stocks shrug off Fed hike, but won weakens sharply
Summary
Seoul stocks held largely steady Thursday after the U.S. Federal Reserve raised its benchmark interest rate for the first time in more than three years. The Korean won, however, weakened sharply as the rate gap with the United States widened and demand for dollars rose. KOSPI closed at 6,715.41, down 0.04 percent, while the won fell 13.6 won to 1,382.2 per dollar. The Kosdaq ended at 822.18, up 0.76 percent.
Key Facts
- The Federal Reserve raised its key rate by a quarter percentage point to a range of 3.75 percent to 4 percent.
- The won returned to the 1,380 won level for the first time in three weeks after closing at 1,382.2 won per dollar.
- Retail investors were net buyers of 413.7 billion won, and institutions bought a net 158.7 billion won.
- Foreign investors sold a net 2.28 trillion won, extending their selling streak after the Korea-U.S. rate gap moved back above 1 percentage point.
- The probability of another rate hike in December, followed by an additional increase next March, rose to 81.1 percent from 69.3 percent, according to KB Securities analyst Kim Il-hyuk.
A stock ticker at Hana Bank's headquarters in Seoul shows the benchmark KOSPI closing at 6,715.41, down 0.04 percent from the previous session, Thursday. Yonhap
Seoul stocks held largely steady Thursday after the U.S. Federal Reserve raised its benchmark interest rate for the first time in more than three years, as the move was largely anticipated and already priced into the market.
The Korean won, however, weakened sharply against the dollar as the widening Korea-U.S. interest rate gap and the prospect of further Fed tightening boosted demand for dollars.
The Fed raised its key rate by a quarter percentage point to a range of 3.75 percent to 4 percent. In the Seoul foreign exchange market, the local currency lost 13.6 won in value to close at 1,382.2 won per dollar, returning to the 1,380 won level for the first time in three weeks.
“The Fed’s rate hike, combined with persistently high international oil prices, is adding to upward pressure on the dollar,” said Moon Da-woon, an analyst at Korea Investment & Securities. “Upward pressure on the won-dollar exchange rate is likely to persist until the U.S. midterm elections in early November.”
The benchmark KOSPI opened 0.91 percent higher at 6,779.02 and stayed modestly in the positive territory for most of the session before slipping into negative territory in the final minutes. It closed at 6,715.41, down 0.04 percent.
Retail investors and institutions were net buyers of 413.7 billion won ($299.4 million) and 158.7 billion won, respectively. Foreign investors, by contrast, sold a net 2.28 trillion won, extending their selling streak as the latest Fed move pushed the Korea-U.S. rate gap back above 1 percentage point.
The wider rate differential and stronger dollar could continue to weigh on Korean equities by encouraging foreign capital outflows, analysts said. The latest Fed move is also fueling expectations that the central bank has entered a renewed tightening cycle rather than making a one-off adjustment.
“The probability of another rate hike in December, followed by an additional increase next March, has risen sharply to 81.1 percent from 69.3 percent,” said Kim Il-hyuk, an analyst at KB Securities. “The market is shifting toward a view that this is not a temporary increase limited to one or two hikes, but the resumption of a rate-hike cycle involving three or more increases.”
The secondary bourse Kosdaq was slightly firmer, closing at 822.18, up 0.76 percent.
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