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| A signboard at Hana Bank shows the KOSPI closing at 2,614.49, Thursday, down 3.5 percent from the previous day's close, after the U.S. Federal Reserve stated it would hike its benchmark rate in March. Yonhap |
Won-dollar exchange rate climbs above 1,200 level
By Kim Bo-eun
Korean stocks took a heavy beating and dipped to the lowest level in 14 months Thursday as foreign investors dumped local shares after U.S. Federal Reserve Chairman Jerome Powell signaled a rate hike in March, while the Omicron variant spreads rapidly here.
The benchmark KOSPI closed at 2,614.49, down 94.75 points or 3.50 percent from a day before. The previous low was 2,591.34 on Nov. 30, 2020. The tech-laced Kosdaq dipped 32.86 points or 3.73 percent to end at 849.23.
The plunge came in the wake overnight declines in Wall Street as the hawkish remarks by Powell sparked a global investors' sell-off of local shares, particularly large-cap technology stocks.
Driven by a foreign sell-off of local stocks, the Korean won lost further ground against the U.S. dollar, with the exchange rate climbing above the psychologically-important 1,200 level, finishing at 1,202.8 won, up from the previous close of 1,197.7 won.
Foreign investors net sold 1.63 trillion won ($1.35 billion) worth of Korean stocks and local retail investors dumped 172.7 billion won worth of domestic shares. Institutional investors, however, were net buyers of 1.8 trillion won worth of Korean shares.
The latest Federal Open Market Committee (FOMC) meeting held Jan. 25 to Jan. 26, local time, decided to keep the benchmark rate at between 0 and 0.25 percent, but implied a rate hike is looming, citing an inflation rate exceeding 2 percent and a strong labor market. The central bank's policy committee said a 0.25-point hike would likely take place soon. This would be the first rate hike since 2018.
"The committee is of a mind to raise the federal funds rate at the March meeting assuming that the conditions are appropriate for doing so," U.S. Fed chief Jerome Powell said in a news conference, Wednesday, local time, following the meeting.
"This is going to be a year in which we move steadily away from the very highly accommodative monetary policy we put in place to deal with the economic effects of the pandemic," he added, referring to the high inflation rate.
The spread of the highly-transmissible Omicron strain has heightened market volatility, with Korea reporting 14,518 new infections on Wednesday, breaking the all-time high of 13,012 set the previous day. The figure has doubled in a week.
Local financial authorities stated they were closely monitoring the latest developments.
Vice Finance Minister Lee Eog-weon said, "We will take preemptive measures to stabilize the market when needed, while monitoring local and global financial markets, and plan to carry out purchases of treasury bonds at appropriate time points, working with the Bank of Korea policy-wise, when deemed necessary."
Bank of Korea Deputy Governor Park Jong-seok said, "The FOMC's policy decision met market forecasts, but Powell's news conference has been evaluated as reflecting a somewhat hawkish stance, and interest rates in the global financial markets have risen and the U.S. dollar has surged against other key currencies, accordingly."
"Given normalization of the U.S. Fed's monetary policy is picking up speed at a time the Omicron variant continues to spread and the Russia-Ukraine geopolitical tension escalates, we will strengthen monitoring of the development of local and global risk factors," he said at a meeting following the FOMC's policy decision.
Economists forecast market volatility to continue for a while, but an acute market crisis is unlikely as the shock on the local market will likely be short-lived.
"The local market was jolted by Powell's remark," Standard Chartered Korea Chief Economist Park Chong-hoon said. "But most markets around the world projected the Fed's rate hike and therefore markets have shown somewhat of an overreaction to the latest remarks. We expect stabilization over time."
"The shock on the local market will not likely last in the long-term," said Jun Kwang-woo, chairman of the Institute for Global Economics. "Even if the Fed hikes the benchmark rate four times this year, the rate will come to just above 1 percent, which historically is not a high level. U.S. monetary policy is in a process of normalizing and this would not affect the performance of companies of key economies. Circumstances are different from the taper tantrum in 2013."
