[MarketING] Tightening Cycle Resumes? KOSPI Retreats to 2570 Level

KOSPI Falls Below 2580 Amid Foreign and Institutional Selling
CJ Group Stocks Weaken Consecutively Due to CJ CGV Rights Offering Impact

The KOSPI turned bearish after a day and retreated to the 2570 level. Concerns over the re-ignition of monetary tightening due to global central banks' interest rate hikes led to massive selling by foreigners, dragging the index down. CJ CGV, which has been falling continuously since the decision on a paid-in capital increase, saw its stock price fall below 10,000 won on the day, and CJ Group stocks also recorded new lows one after another, showing a sluggish trend.

KOSPI Falls to 2570 Level Due to Foreign Selling

On the 23rd, the KOSPI closed at 2,570.10, down 23.60 points (0.91%) from the previous day. The KOSDAQ ended the session at 874.84, down 1.54 points (0.18%).

[Image source=Yonhap News]

Foreigners sold simultaneously in both the spot and futures markets, pulling the index down. On the day, foreigners net sold 187.2 billion won in the KOSPI market and 76.2 billion won in the KOSDAQ market. They also sold 952.7 billion won in the futures market. Institutions sold 444.2 billion won in the KOSPI market, also contributing to the index decline. In the KOSDAQ market, institutions bought 28.4 billion won. Individuals net bought 595.4 billion won and 60.8 billion won, respectively.

Kim Seok-hwan, a researcher at Mirae Asset Securities, analyzed, "The domestic stock market showed weakness due to concerns over the re-ignition of monetary tightening following interest rate hikes by global central banks such as the UK, Norway, and Switzerland," adding, "In particular, foreigners' simultaneous net selling in both spot and futures markets led the index decline."

The previous day, the Bank of England (BOE) unexpectedly raised its benchmark interest rate by 0.5 percentage points from 4.5% to 5.0%. The market had expected a 0.25 percentage point increase. On the same day, the central banks of Switzerland and Norway also raised rates by 0.25 and 0.5 percentage points, respectively, and hinted at further hikes.

Han Ji-young, a researcher at Kiwoom Securities, explained, "Most countries except the United States are maintaining a tightening stance, with cases where Australia and Canada paused rate hikes but resumed them. Following Fed Chair Powell's appearance before the Senate, mentioning the possibility of two additional hikes this year, the probability of a rate hike in July and November on the Chicago Mercantile Exchange (CME) FedWatch tool rose from the 8% range last week to the 20% range." She added, "While the current US benchmark rate is 5.00-5.25%, other major countries have lower rates than the US, and differentiation will continue depending on each country's inflation and employment situation." The recent interest rates of major countries that have raised rates are: UK 5.0%, Canada 4.75%, Australia 4.1%, European Central Bank (ECB) 4.0%, Norway 3.75%, and Switzerland 1.75%.

The gap between central banks and market views is expected to narrow gradually. Choi Yoo-jun, a researcher at Shinhan Investment Corp., said, "Unlike last week when the heightened US tightening intensity triggered profit-taking and a rally, market participants' sentiment has shifted to cautious observation," adding, "This is because there is a large gap in views on tightening between the Fed and financial markets, and as global tightening mode synchronizes, the gap between the market and central banks is likely to narrow."

Sluggish Index, Even More Sluggish CJ Group Stocks

As the stock market has been showing a correction recently and continuing a sluggish trend, CJ Group stocks have been particularly weak. CJ CGV's large-scale fundraising of about 1 trillion won led to a decline in group stocks.

On the day, CJ CGV closed at 9,950 won, down 5.24% from the previous day, falling below the 10,000 won level. CJ CGV's stock price was 14,500 won on the 20th but continued a sharp decline for three consecutive days after announcing a paid-in capital increase of 570 billion won, eventually breaking below 10,000 won. The major shareholder CJ plans to participate in the paid-in capital increase with about 60 billion won and will contribute about 450 billion won in kind through its subsidiary CJ OliveNetworks. Combining the paid-in capital increase and in-kind contribution, the total reaches about 1 trillion won. CJ fell 1.37% on the day, continuing a five-day losing streak. The stock price dropped from the 80,000 won range to 71,800 won.

Group stocks recorded new lows one after another. On the day, CJ CheilJedang, CJ Bioscience, and CJ ENM also hit 52-week lows. CJ CheilJedang hit a new 52-week low at 270,200 won during the session, CJ ENM fell to 66,300 won, and CJ Bioscience dropped to 23,300 won, all setting new 52-week lows. CJ CheilJedang closed down 2.5%, CJ ENM down 3.06%, and CJ Bioscience down 1.25%.

Choi Kwan-soon, a researcher at SK Securities, analyzed, "CJ CGV plans to use the funds raised through the paid-in capital increase for new business expansion and debt repayment. Through CJ OliveNetworks, it expects business synergies such as advanced theater operations, advertising business enhancement, and VFX business expansion, as well as annual dividend income of about 10 billion won," adding, "For the holding company CJ, there is sufficient room for dividend increases due to CJ OliveYoung's strong performance, and the realization of CJ OliveNetworks' equity value is also a positive factor." He continued, "Although CJ's net asset value (NAV) of CJ CGV decreased by 34.6 billion won over two days on the 21st and 22nd, CJ's market capitalization fell by 92.2 billion won, indicating that CJ's stock price decline was somewhat excessive."