[MarketING] The Interest Rate Hike Cycle Is Coming to an End

KOSPI Rebounds in Afternoon... Rises for Second Consecutive Day
Relief as Interest Rate Hike Cycle Nears End Stage

[Image source=Yonhap News]

The KOSPI rose for the second consecutive day, climbing back above the 2420 level. Although it started lower due to disappointment over interest rate cuts and the resolution of banking risks, it rebounded on relief that the interest rate hike cycle is nearing its end. As the rate hike cycle winds down, positive expectations for the domestic stock market remain valid.

KOSPI Recovers Above 2420 After Two Consecutive Days of Gains

On the 23rd, the KOSPI closed at 2,424.48, up 7.52 points (0.31%) from the previous day. The KOSDAQ ended the session at 812.19, down 1.24 points (0.15%). The KOSPI started lower due to the sharp decline in the U.S. stock market but successfully reversed to an upward trend in the afternoon. Meanwhile, the KOSDAQ initially fell, then turned upward, but fell again before the close, finishing slightly down.

Jerome Powell, Chair of the U.S. Federal Reserve (Fed), stated at the press conference following the March Federal Open Market Committee (FOMC) meeting that there would be no interest rate cuts within the year, which initially disappointed the market and caused a decline. However, the market rebounded on relief that the rate hike cycle is in its final stages. Seokhwan Kim, a researcher at Mirae Asset Securities, explained, "The KOSPI started lower as investor sentiment weakened following Powell's remarks, but it turned upward as expectations grew that the Fed's rate hike policy is nearing its end. With rate hikes aligning with market expectations and a reduced possibility of further hikes, the dollar weakened, and the won-dollar exchange rate fell more than 2% intraday, prompting foreign investors to switch to net buying."

The won-dollar exchange rate plunged nearly 30 won amid the Fed's moderation of its tightening pace. In the Seoul foreign exchange market, the won closed at 1,278.3 per dollar, down 29.4 won from the previous day. This is the lowest closing level in about a month since February 14 (1,269.4 won). The daily drop was the largest since November 11 last year (59.1 won).

Foreign investors actively bought amid the dollar's weakness, driving the index higher. On the day, foreigners were net buyers of 214.3 billion won in the KOSPI market and 107.3 billion won in the KOSDAQ market. This marked the first time since early this month that foreigners showed net buying dominance for two consecutive days.

Samsung Electronics rose sharply due to foreign buying inflows. Foreign investors purchased Samsung Electronics shares worth 250.6 billion won, making it the most heavily net bought stock. Samsung Electronics closed at 62,300 won, up 1.96%. After two consecutive days of gains above 1%, Samsung Electronics surpassed the 62,000 won level for the first time this month. Other stocks heavily bought by foreigners included EcoPro BM (108.1 billion won) and L&F (43 billion won), which rose 10.07% and 4.38%, respectively, reflecting the effect of foreign buying inflows.

The Interest Rate Hike Cycle Nears Its End

There are opinions that preparations should be made for the upcoming end of the rate hike cycle. At this FOMC, the Fed maintained the median year-end interest rate forecast at 5.1%, the same level as the December FOMC last year. Additionally, the statement replaced the phrase "ongoing rate hikes are appropriate" with "it may be appropriate to raise the policy rate a little further," indicating that the rate hike cycle is entering its final phase.

Daeseok Kang, a researcher at Yuanta Securities, said, "From a stock market perspective, while additional hikes are important, it is crucial to note that this rate hike cycle, which showed an unprecedented steep slope, is approaching its end. Considering the rise of liquidity crises in the U.S., the end of the rate hike cycle is near, making it difficult for rates and the dollar to regain upward momentum, and positive expectations for the domestic stock market remain valid."

According to Yuanta Securities, since 2000, there have been three cycles of U.S. base rate cuts and hikes, and during the process of ending hikes and moving to a pause, interest rates tend to fall while stock prices generally rise. Kang explained, "The domestic stock market rose for about three months after the end of rate hikes even during the volatile early 2000s, and in other cases, it maintained a gradual upward trend. It is necessary to prepare for the approaching end of the U.S. rate hike cycle."

Although Chair Powell said there would be no rate cuts within the year, some believe that the possibility of rate cuts cannot be completely ruled out. Yunmin Baek, a researcher at Kyobo Securities, said, "While the Fed left the door open for additional rate hikes at the March FOMC, it is expected to remain cautious about taking action amid ongoing banking risks. Especially as a series of banking-related risks have emerged, the focus of monetary policy is likely to shift more quickly from inflation control to economic and financial stability." He added, "There is a need to somewhat acknowledge the possibility of rate cuts within the year. Initially, it was expected that the Fed would maintain a rate freeze after ending the hike cycle, but with the recent expansion of banking-related risks, the timing of rate cuts may be brought forward."