Kospi turnover plunges amid U.S. monetary tightening

Screens at a Hana Bank dealing room in central Seoul shows the Kospi closing at 2,644.51 on Friday, falling for the fourth consecutive day. [YONHAP]

Turnover of Korea's main stock market plunged to similar levels seen during the onset of the Covid-19 pandemic as investors fret over the U.S. monetary tightening, data showed Sunday.

The average daily turnover of the Kospi market stood at 10.7 trillion won ($8.4 billion) in the April 6-May 6 period, down 33.6 percent from a year earlier, according to the data from the Korea Exchange.

The tally was similar to the 10.66 trillion-won turnover two years earlier when the local stock market was battered by the fallout of the Covid-19 pandemic.

In January 2021, the average daily transactions of the Kospi market shot up to 26.4 trillion won. This year, the turnover stayed at around 10 trillion to 11 trillion won after rebounding from a yearly low of 9.9 trillion won in December last year.

The sluggish stock transactions came as investor sentiment was weakened by expectations for the U.S. Federal Reserve's aggressive rate hikes.

Last week, the Fed raised the benchmark interest rate by a half-percentage point to a range of 0.75-1 percent, the biggest hike in 22 years, to curb runaway inflation. The move followed its first rate increase since 2018 in March.

Market experts forecast the Fed is expected to hike the interest rate by a half point in both June and July.

"The financial market is expected to undergo volatile trading in the coming months, depending on U.S. inflation and jobs data," said Huh Jin-wook, an analyst at Samsung Securities.

Concerns about capital flights have arisen as the interest rate gap between Korea and the U.S. could be reversed amid the Fed's aggressive rate hikes.

In April, the Bank of Korea (BOK) raised the policy rate by a quarter percentage point to 1.5 percent, the fourth rate hike since August last year. The BOK may conduct a back-to-back rate increase to 1.75 percent in its policy meeting set for May 26 to tame inflation and curb household debt.

If the Fed raises the federal funds rate by 0.5 percentage point in both June and July, the U.S. policy rate will rise to a range of 1.75-2 percent.

The won's weakness has accelerated in recent weeks as the Fed's move boosted demand for safer assets, spawning concerns about capital outflows.

The Korean currency hit a 25-month low of 1,272.7 won per the dollar Friday. The won has depreciated 6.6 percent against the greenback so far this year.

Yonhap