Kospi jumps up 5 percent on Fed asset purchase scheme

An employee stands in front of a screen with the closing Kospi at the dealing room in Hana Bank located in Jung-district, central Seoul, Tuesday. [YONHAP]

Seoul stocks spiked more than 5 percent on Tuesday, recovering most of the sharp drop in the previous session, as the U.S. Federal Reserve's plan to purchase corporate bonds boosted investor sentiment. Trading had to be halted at one point to contain massive purchases.

The Korea Exchange triggered a sidecar at 10:52 a.m., halting trading for five minutes after the Kospi 200 future index surged 5.05 percent from the previous session. Under local rules, trading is halted for five minutes if Kospi 200 index futures move more than 5 percent. The last issuance of a sidecar was just three months ago on March 24.

The benchmark Kospi rose 107.23 points, or 5.28 percent, to 2,138.05. Trading volume was high at about 947 million shares worth some 13.4 trillion won ($11.1 billion).

Individuals sold off 574.4 billion won, offsetting the buying spree from foreign and institutional investors. Foreigners scooped up 90.4 billion won, ending a five-day selling streak, and institutions purchased a net 472.2 billion won.

The market's bullish rally is largely attributed to the U.S. Federal Reserve’s plan to purchase a "broad and diversified portfolio" of corporate bonds, part of a quantitative easing project to ensure companies can borrow through the bond market amid the fallout from the coronavirus.

“We predict the main Kospi to move within the 2,000 to 2,200 mark for some time, with immense liquidity flowing into the stock market. The weak performance score from local companies in the second quarter will likely hinder the index from rising higher,” said Na Jeong-hwan, an analyst at DS Securities.

A possible easing of U.S-China relationships also contributed to the bull market. Washington said Monday, local time, to amend its prohibitions for U.S. companies doing business with Chinese Huawei.

Another variable is U.S. monthly retail sales, expected to be announced by the U.S. Commerce Department, Tuesday local time, which is considered an indicator of the country’s real economy. Previously, Korean shares tumbled as China reported negative figures for its May retail sales.

Korean shares are sensitive to retail sales reports from other countries.

The United States and China is one of the biggest trade partners of Korea.

In Seoul, most large-cap shares ended bullish.

Samsung Electronics advanced 4.41 percent, and chipmaker SK hynix increased by 4.15 percent.

Bio firms were in positive territory, amid concerns of a second wave of coronavirus infections in the United States and China. Pharmaceutical firm Samsung BioLogics inched up 2.23 percent, while Celltrion spiked by 7.12 percent.

Shares of LG Chem spiked by 13.9 percent amid news that the company claimed the top position in the international market for electric batteries used in automobiles.

Auto shares added gains. Hyundai Motor added 4.64 percent to 101,500 won. It’s smaller affiliate Hyundai Mobis also increased by 4.28 percent closing at 195,00 won.

IT shares were in positive territory, with Naver advancing 5.18 percent and Kakao, the operator of the messaging app Kakako Talk, gaining 4.16 percent.

The secondary Kosdaq gained 42.23 points or 6.09 percent surpassing the 700-point-mark to 735.38.

The local currency closed at 1,207.20 won per dollar, down 8.8 won from the previous session's close.

Bond prices, which move inversely to yields, closed mixed. The yield on three-year bonds stayed flat at 0.86 percent, while the return on the benchmark ten-year government bonds inched up 2.5 basis points to reach 0.72 percent.

BY KANG JAE-EUN [kang.jaeeun@joongang.co.kr]