| U.S. Fed Chairman Jerome Powell speaks during a press conference following a Federal Open Market Committee meeting, on Feb. 1 in Washington, D.C. Reuters-Yonhap |
Dollar weakens on diminished fears of global monetary tightening
By Lee Min-hyung
The benchmark KOSPI advanced Thursday after the U.S. Fed slowed its pace of rate hikes, in a relief rally buoyed by increasing hopes for an end to the cycle of global monetary tightening.
Other multiple indices also moved in favor of risky assets, with the U.S. dollar losing its ground against the Korean won. Cryptocurrencies extended gains after the Fed's "unsurprising" decision of increasing its benchmark rate by 25 basis points.
The Korean main bourse closed at 2,468.88, up 0.78 percent from the previous day, according to data from the Korea Exchange. The tech-savvy Kosdaq achieved a bigger gain of 1.82 percent. Market analysts remained optimistic over local stocks' additional growth after picking up momentum for an unexpected rally in January.
They said the stock market here will be able to extend further gains until as early as the end of the first quarter when the Fed may send a clearer signal to end its rate hike cycle.
The latest decision by the Fed set the key rate gap with the Bank of Korea (BOK) at 1.25 percentage points, which should be pondering over its next move at its next rate-setting meeting. A general consensus is that the BOK will finish its rate hike cycle at around 3.5 or 3.75 percent.
Major tech stocks have driven the solid rally of the KOSPI. Shares of Samsung Electronics, the nation's most valuable firm by market capitalization, closed with a gain of 2.75 percent, on the same day. Other large-cap internet stocks also soared. The stock price of Kakao, the operator of Korea's dominant messenger app, finished with a gain of 3.7 percent, with Naver, the dominant internet portal operator, ending with a gain of 2.92 percent.
| A dealer works at a dealing room at Hana Bank's headquarters in Seoul, Thursday, when the benchmark KOSPI extended a relief rally on the result of the Federal Open Market Committee meeting. Yonhap |
Experts said major external macroeconomic factors will determine the future of the local stock market.
"The possible recovery of the main bourse will be driven by whether the ongoing tug-of-war between the Fed and the market continues to be alleviated and uncertainties surrounding Europe's prices are cleared away," Meritz Securities analyst Lee Jong-bin said. "Other factors also include the movement of the European Central Bank's key rate, and the possible recovery of the Chinese economy."
But the analyst went on to say that Korean stocks have displayed stronger resilience than their Asian counterparts.
"Stocks from Asian emerging markets ― such as Korea and Taiwan ― are forecast to achieve the strongest momentum for recovery in 2024," he said.
Other analysts also concurred over the possible rebound of the local stocks this year.
"Local stocks are unlikely to show any signs of gradual decline (from a near-term viewpoint), as expectations are the Fed will show signs of ending its rate hike cycle around March and April when Korea's exports will also bottom out," Byun Joon-ho, an analyst at IBK Investment & Securities, said.
Reflecting on such a rosy macroeconomic outlook, investors' preference for risky assets has grown in recent weeks.
The won-dollar exchange rate closed at 1,220.3 won per dollar Thursday, down 11 won from the previous trading day, the lowest in about 10 months since April 7 last year. This is an unexpected twist from a few months earlier. The U.S. dollar kept strengthening its valuation against the local currency between January and October 2022. The exchange rate topped a worrying level of 1,400 won in the third quarter of last year, but the upward momentum of the dollar rapidly lost steam from November on diminishing fears of global monetary tightening.
Bitcoin also extended a rally, with a gain of 2.9 percent as of 3:45 p.m. Thursday from a day earlier. Ethereum advanced with a bigger scale of 5.5 percent during the same period, according to data from CoinMarketCap.
Finance Minister Choo Kyung-ho said the government will continue stepping up monitoring of the market.
"Uncertainties remain in place, as prices are forecast to maintain a high level and the economy will suffer growing difficulties due to prolonged weak exports," Choo said during an emergency macroeconomic meeting. Under the close collaboration with other financial authorities, the ministry will keep coming up with detailed policies to deal with any possible risk in a preemptive manner, he said.