KOSPI fails to bounce back despite new administration
Stocks related with nuclear energy, expected to benefit from policies
The benchmark KOSPI plunged again to this year’s new low of 2,596.56 points, Tuesday, on the same day as the inauguration of the new government led by President Yoon Suk-yeol. The local stock markets failed to defend against escalating fears of stagflation despite Yoon’s deregulatory pledges in the local asset market.
Foreign investors’ panic selling of local stocks drove the fall, with institutional and small investors warding off additional falls by purchasing shares here.
The main bourse extended losses of more than 2 percent on Tuesday morning, but slightly recovered by closing with a drop of 0.55 percent. The secondary Kosdaq also failed to bounce back and dropped by the same percent during the same day. According to the Korea Exchange, the main index KOSPI fell five times out of six on the inauguration day of the former six presidents, with former President Lee Myungbak being the only exception.
This came in the wake of an overnight fall of Wall Street amid widening fears over global inflation and the economic slowdown sparked by the U.S. Fed’s reiterated signal for a big step rate hike throughout 2022.
NH Investment &Securities analyst Kim Young-hwan said external risk factors have driven the recent stock fall here. “Foreign investors’ mass exodus will come to an end soon, as they own around 30 percent of Korean stocks, which is the lowest level since 2010,” the analyst said. “The recent adjustment of the local stock market was induced by multiple external risk factors — such as an increase in corporate expenditure due to interest hikes and production cost increases.”
President Yoon is expected to introduce a set of deregulatory policies to win back trust from stock investors. Earlier, he promised to abolish the stock transfer tax as part of his campaign pledge to help boost the local stock market.
He also pledged to take measures to enhance surveillance against any illegal and manipulative trading, with a view to helping boost the stock market by attracting more retail investors into the stock market.
Even if the local stock markets will not be able to regain momentum, from a near-term viewpoint, due political factors, analysts remained optimistic over its gradual recovery as the end of the year approaches.
“The inflationary concerns will peak in the first quarter of this year and then are expected to gradually subside until the end of this year,” Hanwha Investment &Securities analyst Park Seung-young said. “The Fed will also likely change its ongoing stance of big rate hikes to taking baby steps in the latter half of 2022.”
Korea’s consumer prices soared by 4.8 percent in April from the previous year, the biggest monthly rise in more than 13 years. The Bank of Korea has already pushed for a set of preemptive rate hikes, with the country’s benchmark interest rate coming in at 1.5 percent.
Nonetheless, the brokerage house expected the KOSPI to bounce back to above 3,000-point mark in the latter half of this year when inflationary fears will not heighten further.
In the medium to long term, stocks related with nuclear energy and construction are expected to benefit from the new administration’s policies such as the nullification of the Moon Jae-in administration’s nuclear phase-out plan as well as the deregulation of the real estate market.