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| U.S. Federal Reserve Chairman Jerome Powell, left, and Bank of Korea Governor Lee Ju-yeol / AFP-Yonhap |
By Lee Min-hyung
The Korean stock market is feared to be facing risks of another "taper tantrum" this year, as the U.S. Fed's increasingly hawkish turn prompts concerns about foreign capital outflows from here, analysts said.
With the Fed and the Bank of Korea (BOK) delivering ever-stronger signs for earlier monetary normalization, the benchmark KOPSI has failed to get off to a solid start this year. The main bourse has extended losses for the past few trading days, and appears unlikely to recover the symbolic 3,000-mark in a short period of time, amid weakening investor sentiment.
The poor sentiment is attributable to hawkish messages repeatedly shared by ranking Fed officials and the BOK's recent key rate hike. The Fed is set to end its years-long bond-buying campaign by the end of March of this year, and calls are growing that the monetary authority will also start increasing its benchmark rate the same month.
As the Fed's monetary normalization results in foreign investors' capital outflows from emerging markets, the local stock market may undergo a recurrence of the so-called 2013 "taper tantrum" which resulted in a plunge of the KOSPI, market experts said.
"There stands a possibility that emerging economies will face the taper tantrum in the first half of 2022 on the Fed's monetary normalization," Daishin Securities analyst, Moon Nam-joong, said.
In 2022, a number of central banks from developed countries ― such as the Fed and the European Central Bank ― will initiate their exit strategies (by increasing key rates), so emerging countries will be exposed to risks of stock volatility, sparked by foreign capital outflows and currency depreciation, according to the economist.
"This is why investors here and abroad will be hesitant to invest capital in emerging markets," he said.
A widespread view is that the Fed will start increasing the key rate as late as the end of the first half of 2022 to tame inflation, despite lingering pandemic uncertainties.
The BOK pushed for a preemptive rate hike back in August 2021 for the first time following the outbreak of the pandemic, and has since done so twice more. Korea's key rate reached 1.25 percent after the central bank raised it by 25 basis points on Jan. 14.
The main bourse reached a record level of 3,300 points in June of last year, but has since failed to gain fresh momentum for a rebound due to growing uncertainties over the post-pandemic monetary normalization here and abroad. The won-dollar exchange rate also hovers around 1,190 won per dollar, which is the highest level in about a year, because of investors' preferences for safe assets.
As the monetary authorities of both Korea and the U.S. share similar views on the rate hikes amid growing inflationary pressure, the stock market here is expected to continue facing volatility at least until the first half of 2022, according to the brokerage house.
BOK Governor Lee Ju-yeol also reaffirmed his strong willingness to increase the rate further, saying that Korea's monetary circumstances will not be contractionary, even after another rate hike to 1.5 percent.
He hinted at the possibility of the BOK pushing for another rate hike if the Fed starts doing so.
"Even if we started raising the key rate more preemptively than the Fed, the U.S. monetary authority's faster tightening will give the BOK more leeway in raising the key rate further," he told reporters after the monetary policy board meeting.
