Kospi marks first quarterly decline since Q1 2020
The Kospi fell on-quarter in the third quarter for the first time since the first quarter of 2020 on concerns of monetary tightening at home and abroad.
Compared to 3,296.68 at the end of June, Seoul’s main bourse had fallen by 6.91 percent to 3,068.82 by the end of September.
That is the first quarterly decline since the first quarter of 2020, when global stock markets plunged due to the outbreak of the coronavirus pandemic.
The Kospi fell by 20.15 percent in the first quarter of 2020 to 1,754.64. After hitting that low, the index showed unexpectedly strong growth, bouncing back by 20.15 percent by the end of June, 2020, and strengthening by another 10.41 percent by the end of September that year.
In the fourth quarter last year, the index jumped 23.43 percent, largely thanks to abundant liquidity under monetary easing by governments around the world to tackle the economic downturn caused by the pandemic. Investment also saw an upturn in Korea as small retail investors jumped into the stock market looking for a quick profit.
The rally continued during the first half of this year, with the index passing the 3,000-mark for the first time in history at the beginning of the year, and passing the 3,300-mark for the first time in June.
The trend, however, has been reversed recently as central banks mull ways to pull back the abundant liquidity to stabilize prices and curb household debt growth.
The Bank of Korea has already raised the country’s base interest rate by 25 basis points in August to 0.75 percent and local analysts project another hike is likely to come within the year.
The U.S. Federal Reserve has also signaled a potential tapering of assets in the near future after the September Federal Open Market Committee meeting.
In the past week, Fed Chair Jerome Powell's more hawkish tone in describing inflation has already driven up the yield on 10-year U.S. Treasurys to above 1.5 percent, the highest level since June.
In a testimony delivered to the Senate Banking Committee of the U.S. Congress last week, Powell said “inflation is elevated and will likely remain so in coming months before moderating,” adding that upward pressure on prices could be “larger and longer lasting than anticipated,” particularly due to supply bottlenecks in some sectors.
The comments pulled down both U.S. and Kospi stocks.
Some risks come from China. A possible default by China’s Hengda Real Estate Group, the main unit of Evergrande, froze investor sentiment, while a power supply crunch in the country is hurting global production and causing inflation in major economies.
Locally, regulations on Big Tech companies also drove stock prices to fall.
While local retail investors’ top picks in September were tech giants Kakao and Naver, Kakao shares plunged by 23 percent from a closing price of 154,000 won ($130) on Sept. 1 to 118,000 won on Sept. 30, and Naver shares fell by 12.8 percent from 445,000 won to 388,000 won over the same period.
Kakao and Naver have been scrutinized by lawmakers from last month, mainly related with their fair trade issues.
An issue that might bring up investor interest is third quarter earnings releases by local companies, such as Samsung Electronics, which is expected to release its preliminary earnings this week.
“Earnings by Kospi companies including Samsung Electronics in the third quarter will likely set new records,” said Kim Young-hwan, an analyst from NH Investment & Securities.
Kim, however, said that strong earnings in the quarter may not translate to strong stock prices considering projections that local companies’ earnings will hit a peak this year and then fall.
BY KIM JEE-HEE [firstname.lastname@example.org]