[MarketING] Interest Rate Hike Ending? KOSPI Rises for 8 Consecutive Days

US Inflation Relief Raises Hopes for End of Interest Rate Hikes

[Image source=Yonhap News]

[Asia Economy Reporter Song Hwajeong] As expectations for the end of the interest rate hike cycle grow, the KOSPI continued its eight-day winning streak. It also reclaimed the 2380 level for the first time in a month. Recent gains have led to opinions that the long-term downtrend of the KOSPI has ended.

KOSPI Recovers to 2380 Level on Expectations of Interest Rate Hike End

On the 13th, the KOSPI closed at 2386.09, up 20.99 points (0.89%) from the previous day. The KOSPI rose for eight consecutive days, surpassing the 2380 level for the first time in a month. The KOSDAQ closed at 711.82, up 1.00 point (0.14%).

Kim Seokhwan, a researcher at Mirae Asset Securities, explained, "The KOSPI started higher on relief over the slowdown in the US consumer price index and ended the session strong, led by large-cap stocks, digesting the Bank of Korea’s Monetary Policy Committee’s interest rate hike announcement during the day."

On the same day, the Bank of Korea’s Monetary Policy Committee held a meeting to decide the direction of monetary policy and raised the base interest rate from 3.25% to 3.50% per annum. The Bank explained the reason for the rate hike, stating, "Although the domestic economic growth rate is expected to be lower than the forecast made last November, inflation remains at a high level and is projected to exceed the target level for a considerable period. Therefore, it was judged necessary to raise the base interest rate by an additional 0.25 percentage points to stabilize prices."

The market expects this rate hike to mark the end of the interest rate hike cycle. Kim Jiman, a researcher at Samsung Securities, said, "We maintain our previous forecast that the base rate will remain steady at 3.5% until the end of the year. The February Monetary Policy Committee meeting is likely to use the downward revision of growth forecasts as grounds for holding the base rate steady. The next meeting after February is in April, by which time the peak of the US base rate is expected to be confirmed. Inflationary pressures are expected to ease from the second quarter, reducing the need for further rate hikes."

Gang Seungwon, a researcher at NH Investment & Securities, also said, "The Bank of Korea’s emphasis on downside risks to the economy and acknowledgment of inflation peaking reflect the realization of the effects of previous rate hikes. Given the need to assess the effects of rate hikes for a while, it is judged that the era of 'continuous rate hikes' has ended." He added, "Downside risks to the economy are expected to expand further, and with the stabilization of prices centered on falling jeonse (long-term lease) prices accelerating, this rate hike is the last, and we maintain our forecast for a rate cut in the fourth quarter."

Long-Term Downtrend of KOSPI Also Ends

As the KOSPI continues its rally with eight consecutive days of gains, analysis suggests that the long-term downtrend of the KOSPI is also coming to an end.

Jung Inji, a researcher at Yuanta Securities, said, "Although the KOSPI fell below the 2200 level during the day at the beginning of the year, it rebounded due to expectations of easing inflation and foreign buying. In this process, the January low was formed at a higher level than the low at the end of September last year, and it reached the 120-day moving average line, which had been breached in December, again." He added, "The KOSPI had already formed a bullish divergence?a trend reversal signal?where the medium-term low between July and October last year was lower, but the relative strength index (RSI) low was higher. With the higher medium-term low in January, the long-term downtrend can be considered over."

However, to enter a rising phase, it seems necessary to surpass the 2500 level. Researcher Jung said, "Strong resistance is expected around the 2500?2550 point range, where previous highs are located, and only by surpassing this price range can the possibility of entering a rising phase be explored."