Tapering takes a toll on the Kospi

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Tapering takes a toll on the Kospi

The U.S. Fed’s tapering off of its unprecedented stimulus program continued as the market expected.

But compared to the last two tranches of “tapering,” the latest has affected not only Wall Street but also Seoul’s main bourse as the benchmark Kospi lost more than 18 points or 0.94 percent from the previous trade to close below 1,920 yesterday.

The situation was similar in other markets. The Dow Jones index lost 114 points, or 0.7 percent, overnight. The Japanese stock market lost more than 238.29 points or 1.65 percent yesterday.

The Fed’s two-day meeting ended Wednesday U.S. time with the U.S. central bank deciding to shave another $10 billion from its bond-buying program next month, reducing the purchases from $65 billion to $55 billion.

It was Janet Yellen’s first Federal Open Market Committee (FOMC) meeting as chairwoman.

Even the optimistic indicator that the U.S. trade deficit hit a 14-year low couldn’t turn the tide and foreign investors continued to dump shares on the Korean market, which has been going on for the last nine trading days.

Yellen noted that a 6.5 percent unemployment rate will no longer be the primary factor in deciding the Fed’s policy going forward, saying it would look at broader economic indicators.

The Fed chairwoman added that the Fed will continue its near-zero interest rates and only plans to raise them six months after the bond-buying program stops altogether.

That was supposed to be an assurance.

But market experts say the ambiguity on forward guidance factors struck fear in market participants, who turned to Fed officials’ forecasts on the benchmark interest rate.

Among 16 policy makers on the Fed, one projected an interest rate hike as early as this year, while 13 believed the action will be taken next year. Two forecast a raise in interest rates in 2016.

The market was earlier expecting an interest rate hike to take place in the latter half of 2015. The possibility of a hike sooner than what the market expected is perceived as a clear sign the U.S. central bank is already taking steps in an exit strategy from its stimulus.

Market analysts said heightened concerns over interest hikes, particularly not knowing when they may come, will further intensify global market volatility.

Emerging markets suffering from current account deficits such as Brazil, India and Indonesia will have trouble attracting foreign investment, and this will also eventually affect the Korean economy.

Such concerns resulted in further downward pressure on the Kospi yesterday.

“The transparency in when the Fed will raise interest rates has become much murkier,” said Hong Seok-chan, foreign exchange strategist at Daishin Securities.

“It seems the Fed will likely start raising interest rates from mid-2015 as it said it would do so six months after ending the quantitative easing. That contradicts earlier market expectations that the Fed would take a dovish stance [which means supporting economic growth through loose monetary policy.]”

Chun Jung-hoon, an analyst at Kiwoom Securities, said the market responds sensitively to the Fed members’ projections on when interest rate hikes would take place rather than the ambiguous forward guidance.

“Although the FOMC has taken a hawkish stance in its March meeting, considering the economy is improving, the Fed will likely maintain its current economic stimulus position,” Chung added.

BY LEE HO-JEONG [ojlee82@joongang.co.kr]


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