Seoul stocks tumble on concerns over Fed's prolonged monetary tightening

The Korea Times

The Korea Times

Finance

Wed, November 29, 2023 | 04:00

Markets

Seoul stocks tumble on concerns over Fed's prolonged monetary tightening

Posted : 2023-10-04 16:49

Updated : 2023-10-05 08:23

A trader works at a dealing room in Hana Bank's headquarters in Seoul, Wednesday. The main KOSPI index closed at 2,405.69, down 2.41 percent from the previous session, while the won-dollar rate rose 14.20 to 1,363.50, amid increasing concerns over further policy tightening in the U.S. following rising U.S. treasury yields and an increasing preference for safer assets. Yonhap

By Lee Yeon-woo

The Korean stock market ended lower, Wednesday, following signs that the U.S. Federal Reserve (Fed) will pursue further monetary tightening measures.

The main KOSPI index closed at 2,405.69, plunging 2.41 percent from the previous trading session. The main bourse shed 45 trillion won ($33.3 billion) in market cap.

The secondary KOSDAQ closed at 807.40, plummeting 4 percent from the previous trading day. It was the first time since July 26 that the tech-laden index suffered a 4 percent fall.

Foreign and institutional investors have contributed to the decline, net selling shares valued at 420 billion won ($380 million) and 490 billion won, respectively.

The Seoul bourse has been making bearish moves recently, and the fall on Wednesday was prompted by hawkish remarks from several Fed officials, who raised possibilities that the Fed would raise policy rates once again within this year and continue to maintain the figure for a significant time. This was amplified by political uncertainties as House Speaker Kevin McCarthy was dismissed for the first time in the U.S. Congressional history.

Accordingly, on Tuesday (local time), benchmark 10-year yields of the U.S. treasury stood at 4.74 percent, up 6 basis points. This is the highest level in 16 years since August 2007. 10-year yields of Germany and the U.K. followed suit, marking 2.9 percent and 4.6 percent, respectively.

The Korean won also further weakened on Wednesday. The won-dollar exchange rate opened at 1,360 won in the foreign market on Wednesday and closed at 1,363.5 won per dollar, up 14.2 won from the previous trading session.

"Even though the stock market absorbed the impacts from high interest rates and strong dollar, its consequence is the creation of a situation that would restrict the stock market for some time," said Han Ji-young, an analyst at Kiwoom Securities.

"The prolonged high interest rates, combined with the subsequent strengthening of the dollar, might heighten the preference towards safe assets," said Park Sang-hyun, an economist at HI Investment & Securities.

yanu@koreatimes.co.kr