KOSPI unlikely to avoid impacts from global stagflation

As the U.S. stock market saw its biggest daily drop in nearly two years on Wednesday, Korea’s main index, the KOSPI, fell below the 2,600-point mark on Thursday, with strong sell-offs from institutional and foreign investors, shedding the two previous sessions’ gains.

The index ended at 2,592.34, a 1.28-percent decline from the previous session, while the techheavy KOSDAQ finished at 863.80, a 0.89-percent fall from Wednesday’s closing.

Korea’s benchmark index started off Thursday’s session at 2,576.24 points, a 1.89-percent fall from the previous session. The index recovered slightly during the session, as it climbed up to 2,597.79 at around two in the afternoon, mainly owing to net-buying from retail investors.

“The KOSPI fell to as low as 2,568.54 during Thursday’s session. Yet the index gained some strength in the afternoon, reducing the daily drop, as the U.S. stock futures turned positive during after-hours trading and the markets’ preference for safe assets retreated a little, with U.S. treasuries’ interest rates rising again,” Lee Kyoung-min, a strategist at Daishin Securities, said.

Thursday’s fall in Seoul is largely attributed to the U.S. stock market’s significant decline on Wednesday, which sent the S&P 500 down by 4.04 percent, the Nasdaq by 4.73 percent and the Dow Jones Industrial Average by 3.57 percent — the biggest daily decline since June 2020. Wednesday’s strong sell-off of U.S. stocks was triggered by the combined impacts from the shock of American retail businesses’ earnings and the market’s negative earning guidance over a possible recession, which high inflationary pressure would further impair, reducing corporate profit in the future.

With the benchmark index reaching is lowest point since November 2020, market watchers say the country’s stock markets are likely to continue to suffer from global recession concerns for the time being.

“Wednesday’s U.S. stock exchanges showed that the consumption level can be curtailed due to inflationary pressure, reflecting the market’s concerns over a recession. This could lead to a series of downward corrections of Korean companies’ earnings guidance,” Seo Sang-young, an analyst at Mirae Asset Securities, pointed out, adding that uncertainties regarding global supply chain disruptions would also stimulate the contraction of investment sentiment.

Yet some analysts stressed that the Korean stock exchanges’ drops will be limited compared to that of the U.S. exchanges, as the local stocks have already been falling for quite a time, factoring in negative economic elements. “Amid the same macro environment of tightening liquidity, Korean stock exchanges seem to fare slightly better than U.S. exchanges, as local stock indices have already factored in an adverse market prediction,” Chung Myoung-jin, an analyst at Samsung Securities, said.