‘Santa Claus rally’ in full effect as Kospi hits seven-month high

Christmas has come early as the news of the United States and China reaching an agreement on its trade dispute has boosted the stock market to its highest level in seven months.

There are already growing expectations of a “Santa Claus rally” that will likely continue into next year.

The Seoul main bourse on Friday closed 32.90 points higher than the previous day, up 1.54 percent at 2,170.25. The last time the Kospi closed this high was in May 7 when it ended the day at 2,176.99.

Additionally, it was the second day in which the Kospi gained more than 30 points.

The Kospi has been on a bullish rally for six consecutive trading days.

While Thursday’s market was positively affected by the U.S. Fed’s dovish signal, Friday’s was the result of news reports that U.S. President Donald Trump accepted a limited trade deal with China, which is seen as the first step toward ending the long trade war between the world’s two largest economies that has been plaguing the market.

It has been reported that Trump is expected to announce the delay or cancel the 15 percent tariffs on $160 billion worth of Chinese consumer goods imported in the United States that was supposed to go into effect on Sunday.

Trump on Thursday even tweeted “Getting VERY close to a BIG DEAL with China. They want it, and so do we!”

The Chinese government also stated during its regular briefing that its government is in close communication with Washington over trade.

At the news, other markets across the globe rose. The Dow Jones ended 0.79 percent higher overnight while the S&P 500 closed 0.86 percent higher. The Nasdaq also closed 0.7 percent higher.

It was a record high for all three markets.

Tokyo’s stock market Nikkei 225 rallied 2.55 percent, which helped the market to close at its highest in two months, while the Shanghai market ended 1.78 percent higher.

The won, which was weakening against the U.S. greenback, appreciated thanks to foreign investors shoring up stocks on the Kospi.

It closed 16.50 won (1 cent) less than the previous day to close at 1,172.50 won against the U.S. dollar.

On the contrary safer assets including gold retreated. The price of bullion dipped 0.18 percent.

“With the easing of external uncertainty, we can expect a Santa Claus rally in the Kospi,” said Han Dae-hoon, SK Securities analyst. “With the news of the United States and China reaching an agreement on trade, riskier investment attractiveness is likely to resurface.”

Han added that while there are other major issues such as Brexit still remaining, the impact on the market will likely be limited.

Suh Sang-young, analyst at Kiwoom Securities, said the news has had a positive impact on the market as there were growing concerns that if the U.S. government went with the tariff on Chinese imported goods on Sunday, the two sides would likely have continued dialogue until the U.S. presidential election next year.

“Due to the trade war between the United States and China that has continued for 17 months, the global economy’s growth slowed while companies’ profits and investments in both countries have weakened,” said Suh.

However, the Kiwoom analyst raised concerns over the content of the deal.

“The problem is, even though Trump has mentioned a big deal, it is still uncertain how much [the new deal] will be different from the previous agreement,” Suh said.

BY LEE HO-JEONG [lee.hojeong@joongng.co.kr]