The Bank of Korea's Hawkish Stance Leads to KOSPI and KOSDAQ Closing Lower Together... Institutions 'Selling'

[Image source=Yonhap News]

[Asia Economy Reporter Myung-Hwan Lee] On the 26th, the domestic stock market closed lower following remarks by Lee Chang-yong, Governor of the Bank of Korea, suggesting further interest rate hikes. The market started the day with gains but shifted to a decline after the Bank of Korea's Monetary Policy Committee (MPC) announced a rate hike and the Governor's hawkish comments. Institutional investors led the decline with net sales exceeding 150 billion KRW.

On the day, the KOSPI closed at 2,612.45, down 0.18% (4.77 points) from the previous trading day. The KOSPI opened at 2,616.99, down 0.01% (0.23 points) from the previous day, and initially gained momentum but weakened in the afternoon session. After the Governor's remarks, the market turned flat before shifting to a decline. By investor type, individuals and foreigners net bought 95.6 billion KRW and 37.7 billion KRW respectively, while institutions alone sold 155.8 billion KRW.

At a press conference held immediately after the MPC regular meeting, Governor Lee stated, "Monetary policy will be operated focusing on inflation over the coming months," indicating the possibility of further base rate hikes. He added, "We currently assess that inflation risks are significant."

Prior to the Governor's remarks, the MPC decided in the morning to raise the base interest rate from 1.5% to 1.75%, an increase of 0.25 percentage points. Along with the rate hike, the MPC also revised upward this year's inflation forecast from 3.1% to 4.5%. This is the highest level in 14 years (since July 2011), reflecting the prolonged Ukraine war and supply chain disruptions that have significantly increased prices of key raw materials.

Kim Seok-hwan, a researcher at Mirae Asset Securities, explained, "The Bank of Korea's indication of further rate hikes and its statement that monetary policy will focus on inflation due to inflationary pressures have burdened the market."

The top 10 market capitalization stocks showed mixed trends. Samsung Biologics closed at 840,000 KRW, up 1.08% (9,000 KRW) from the previous day. LG Energy Solution (0.94%) and Hyundai Motor (0.27%) also ended higher. On the other hand, SK Hynix closed at 103,000 KRW, down 4.63% (5,000 KRW), affected by news that its NAND flash market share declined in Q4 last year compared to the same period the previous year. Samsung Electronics (-0.75%), Samsung SDI (-1.02%), and Kakao (-0.37%) also fell. Samsung Electronics Preferred, NAVER, and LG Chem closed at the same prices as the previous day.

By sector, notable gains were seen in Electric and Gas Utilities (1.73%), Steel and Metals (1.12%), and Banks (1.00%). The banking sector's rise is interpreted as a response to the base rate hike decision. Conversely, sectors such as Electrical and Electronics (-0.97%), Retail (-0.56%), and Food and Beverages (-0.53%) declined.

The KOSDAQ index closed at 871.43, down 0.14% (1.26 points) from the previous day. The index opened at 876.19, up 0.4% (3.50 points), showing nearly a 1% gain, but the upward momentum slowed after Governor Lee's remarks in the afternoon, eventually turning negative. By investor type, individuals and institutions bought 44.7 billion KRW and 25.6 billion KRW respectively, while foreigners alone sold 65.1 billion KRW.

Most of the top 10 KOSDAQ stocks by market capitalization declined. Lino Industrial closed at 161,000 KRW, down 4.17% (7,000 KRW), along with declines in EcoPro BM (-1.94%), L&F (-2.60%), Kakao Games (-1.49%), Pearl Abyss (-0.47%), Celltrion Pharm (-0.63%), Wemade (-2.81%), and Chunbo (-1.82%).

By sector on KOSDAQ, Transportation rose sharply by 7.65%. Publishing and Media Replication (2.18%), Metals (1.47%), and Broadcasting Services (1.31%) also gained. In contrast, semiconductor-related sectors such as Semiconductors (-1.20%), IT Components (-1.19%), and General Electrical and Electronics (-1.15%) all declined.