Global panic continues to affect Kospi, Kosdaq

Korean stock markets tumbled Friday, affected by another rout in the U.S. stock markets.

Sharp swings in both equity and bond markets began last week on fears of faster-than-expected U.S. Fed interest rate hikes because of rising inflation. Some analysts see equity markets entering correction territory after major gains last year and through January.

The main Kospi bourse dropped 1.82 percent on Friday to 2,363.77 while the junior Kosdaq plunged 2.24 percent to 842.6 compared to the previous trading day.

The downturns followed the decline of U.S. markets with Dow Jones industrials falling 1,033 points or 4.15 percent and the S&P 500 index losing 3.5 percent.

A Bank of England signal of earlier and larger interest rate hikes reignited investors’ worries about the pace of the monetary policy tightening.

“The Bank of England held the rate, but it raised growth prospects in a report,” said Kim Il-hyun, analyst at KB Securities, “Mark Carney, governor of the central bank, also noted that the rate rise will come earlier than planned and that caused investors to worry that the central banks of major economies are rushing to monetary tightening.”

The U.S. Fed is expected to push through more interest rate hikes this year.

A combination of good employment statistics and other economic indicators could lead the U.S. Fed to accelerate the pace of interest rate hikes from three this year to four. In a FOMC meeting last month, the central bank anticipated inflation would rise this year, ahead of a much-anticipated rate hike in March.

Concerns about rising inflation expectations and monetary tightening typically erode the value of bonds, which pushes up the yields of government bonds. Yields have an inverse relationship to prices.

After a four year high for U.S. 10-year Treasuries last week, the benchmark note fluctuated.

“The yields of other foreign government bonds stabilized this week,” said Jeong Yeong-lock, analyst at Korea Investment & Securities.

“But the yield on the 10 year treasury note experienced volatile trading, and still risks loom for the benchmark bond climbing again,” Jeong said.

“The concerns for inflation are also linked with the prospect for faster interest rate hikes,” he said.

While the Kospi suffered sharp losses, biopharma Celltrion debuted on the main trading board after it moved from the junior Kosdaq bourse.

It positioned itself as the third largest market cap after gaining 6.08 percent to close at 288,000 won ($265).

The company was the only stock on the rise among the Kospi’s 20 biggest players.

Investors are wondering if it will make it into the Kospi 200 Index.

“If Celltrion is included in the key index, which is followed by many investors, it can raise another 750 billion won through the inclusion,” said Ha In-hwan, analyst at SK Securities.

BY PARK EUN-JEE [park.eunjee@joongang.co.kr]