Seoul stocks rebound sharply from short-lived Warsh shock

An electronic board shows the KOSPI closing at 5,288.08 points at Hana Bank in Seoul, Tuesday. Yonhap

Seoul stocks jumped nearly 7 percent to reach a record high Tuesday, brushing off the previous session’s steep fall caused by uncertainty involving the nomination of a hawkish figure as the new chair of the U.S. Federal Reserve.

According to the Korea Exchange (KRX), the benchmark KOSPI closed at 5,288.08 points, up 6.84 percent from the previous trading day. The tech-heavy Kosdaq closed at 1,144.33 points, up 4.19 percent.

The rebound was driven largely by institutional and foreign buying of large-cap semiconductor shares. Samsung Electronics and SK hynix shares closed at 167,500 won ($116) and 907,000 won, up 11.37 percent and 9.28 percent from the previous session, respectively.

Soon after the KOSPI opened at 5,114.81 points, up 3.34 percent from the previous session, the bourse operator activated a KOSPI buy-side circuit breaker, otherwise known as a “sidecar,” at 9:26 a.m.

The measure came after the KOSPI 200 Futures jumped more than 5 percent. The five-minute measure was the first activation since April 10 last year.

This was a dramatic shift from the previous session when a sell-side circuit breaker was activated, as the KOSPI 200 Futures fell 5 percent.

On Monday, investors initially interpreted the nomination of Kevin Warsh as the new Fed chair as a possible signal of tighter monetary policy.

However, the fear soon subsided, leading to a strong buying of Korean semiconductor shares with a robust earnings outlook over the coming years.

Standard Chartered Bank Korea strategist Hong Dong-hee said Monday's steep fall was excessive. "(Monday's) decline seems excessive, since the economy is not facing a crisis now. The KOSPI has rallied sharply over the past few months, so a short-term correction may seem understandable.”

But the continued strong semiconductor-driven rally is also warranted due to a robust earnings outlook for the two semiconductor powerhouses, Hong said.

“Their profit is expected to increase in the coming quarters, backed by strong artificial intelligence demands. Concerns about overvaluation may linger throughout, but the market is expecting an even greater growth momentum," he said.

Foreign investors and institutions net bought over 420 billion won and 780 billion won, respectively. Retail investors net sold over 1.1 trillion won.

The overnight rally in U.S. markets also played a key role. The Dow Jones rose more than 1 percent, while the S&P 500 and Nasdaq gained 0.54 percent and 0.56 percent, respectively.

Gold prices are stabilizing after a sharp drop of 10 percent in the previous session.

Domestic gold prices closed at 236,090 won per gram as of 12 p.m., Tuesday, up 3.68 percent from a day earlier.

On Monday, it had plunged 10 percent, reportedly prompted by massive selloff by Chinese speculative investors. They viewed that gold price rally would stop, influenced by the hawkish new Fed chair designate.

Tuesday's rebound came as Friday's "margin call shock" in gold and silver futures eased. A margin call is a request to add more money when losses on leveraged futures positions grow. If not, investors are forced to sell, which can sharply push prices lower.

Meanwhile, Bitcoin traded at around $78,680, as of 5 p.m., Tuesday, after falling from about $96,000 on Jan. 15.

The biggest factor behind the Bitcoin price drop seems growing geopolitical uncertainty, Hong said. “Each time trade tensions intensified by sudden tariff threats from U.S. President Donald Trump, risk appetite weakened and Bitcoin prices fell sharply.”