KOSPI, FOMC Watch
Expectations for Alternatives to Rising Market Interest Rates
Growing Optimism for Economic Recovery
Focus on Cyclical Stocks
[Asia Economy Reporter Hwang Junho] Ahead of the Federal Open Market Committee (FOMC) meeting scheduled for the 16th to 17th (local time), the domestic stock market has entered a wait-and-see mode. Since market interest rates and stock market funds could shift depending on the interest rate outlook of the Federal Reserve (Fed), the central bank of the United States, investors have started a cautious game of anticipation. While many experts expect a dovish monetary policy direction to be presented, they also hope for alternatives to the recent sharp rise in market interest rates. Interest in cyclical stocks has increased in the market.
As of 9:26 a.m. on the 16th, the KOSPI was up 0.16% at 3,050.72. The previous day, it rose to a high of 3,065.17 before fluctuating down to 3,026.14 and eventually closed down 8.68 points at 3,045.71.
Among the 912 stocks comprising the KOSPI, 561 rose, but the index closed lower. Pension funds, including the National Pension Service, were net buyers for the first time in 52 trading days, but stocks that had led the market declined, putting downward pressure on the index. Samsung Electronics, which accounts for 26% of the KOSPI market capitalization, fell 1.21%, and SK Hynix also dropped by 2.50%. Institutions and foreign investors focused on selling these two stocks.
This mixed trend is expected to continue until the FOMC results are confirmed. The FOMC will present economic outlooks, dot plots, and interest rate forecasts. In particular, attention should be paid to the opinions and alternatives from FOMC participants regarding the recent rise in market interest rates, such as the US 10-year Treasury yield, which has been exerting downward pressure on the stock market.
Huh Young-joo, a researcher at Korea Investment & Securities, forecasted, "There is a high possibility that Fed officials will take stabilization measures on long-term interest rates, which could reduce volatility in Treasury yields and keep them moving within a band."
Lee Kyung-min, a researcher at Daishin Securities, said, "Due to recent strong economic indicators and the implementation of a $1.9 trillion stimulus package, the Fed is likely to revise upward its economic and inflation outlooks," adding, "This could sustain the pressure of rising interest rates and inflation." He further noted, "If the FOMC fails to meet investors' expectations, global financial market volatility could increase, so it is necessary to check the FOMC statement and any changes in the dot plot."
Interest in cyclical stocks is growing in the market. Compared to IT-related growth stocks that have led the market so far, attention has shifted to stocks whose performance depends on economic recovery. On the 15th, sectors including construction, and transportation equipment?which includes automobile and shipbuilding stocks?rose. The market evaluated that institutions and foreign investors were betting on economic recovery ahead of the FOMC. Institutions bought LG Chem, GS Engineering & Construction, Hotel Shilla, Hyundai Heavy Industries, and Kia Motors, while foreign investors purchased Kia Motors, LG Chem, and Hotel Shilla.
Lee Jae-yoon, a researcher at SK Securities, analyzed, "The correlation coefficient between the KOSPI and foreign investor flows over the past month reached 0.85," adding, "Investments have been made in reflation (economic recovery) due to the pressure of rising interest rates and inflation."
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