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| An electronic board at a dealing room of Hana Bank in Seoul shows the KOSPI's closing price on Monday. Yonhap |
By Lee Min-hyung
The U.S. Federal Reserve's upcoming message on its possible policy shift will determine whether Korean stocks can extend their rare momentum for a rally even after the Lunar New Year holiday.
According to data from the Korea Exchange, the benchmark KOSPI is on a path for a gradual rebound with an increase of 7.6 percent between Jan. 2 and 16. This was driven by foreign investors' unexpectedly robust return to the local stock market. They have been on a buying spree of Korean stocks, except for one trading day on Jan. 10. They purchased local shares worth 2.94 trillion won ($2.47 billion) during the same period.
This is drastic growth from a month earlier. They purchased Korean stocks worth merely 403 billion won in December. As of Jan. 16, the main bourse recovered to nearly 2,400 points after hitting a bottom of about 2,200 points earlier this year.
They returned to the main bourse on growing hopes for an end to the year-long cycle of rate hikes here and abroad. After increasing the key rate by 25 basis points to 3.5 percent last week, the Bank of Korea (BOK) is also nearing an end to the cycle. The market consensus is that the BOK will finish the cycle at either 3.5 or 3.75 percent in line with the next step from the Fed.
"We keep our terminal policy rate forecast at 3.75 percent for this cycle," BNP Paribas economist Yoon Jee-ho said. "Given the split views in the monetary policy board, we assign a 60 percent probability that the BOK hikes its policy rate to 3.75 percent, and 40 percent probability that the BOK ends the hiking cycle at 3.5 percent. We still expect rate cuts to start in 2024."
All eyes are on the Federal Open Market Committee's (FOMC) two-day-long meeting scheduled from Jan. 31. But the Fed is also widely forecast to slow down its pace of rate hikes by increasing its benchmark rate by only 25 basis points. Starting from March 2022, the authority has taken ultra-hawkish monetary steps with four consecutive giant rate hikes of 75 basis points.
But there still stands a chance for the Fed to turn to hawkish rhetoric amid lingering inflationary pressure.
"The Fed appears poised to deliver a 25-basis-rate hike at the Feb. 1 meeting, then be data-dependent for the February and March meetings," said Edward Moya, senior market analyst at OANDA.
The signs of an end to monetary tightening here and abroad also drove the rebound of major cryptocurrencies. According to data from CoinMarketCap, Bitcoin was traded at around $20,850 as of 5:30 p.m. Jan. 16. This is a rise of more than 26 percent from the end of 2022.
