Stock retreat continues as economic concerns increase

Electronic display boards at Hana Bank in central Seoul show indexes in Korea on Monday. [YONHAP]

Korean stocks fell to a new 52-week low as indexes and assets globally retreated and the crypto meltdown continued.

The Kospi ended Monday down 2.04 percent to 2,391.03. It is down 20 percent this year and 26 percent on year and trading where it was five years ago.

Foreign investors led the rout, net selling 625.84 billion won ($485 million) of stocks.

Names big and small were hit hard. Samsung Electronics, the largest company in the country, was down 1.84 percent to a new 52-week low, SK Inc. 3.02 percent, LG Electronics 3.22 percent and Korean Air Lines 4.85 percent.

Clear indications of higher interest rates are compelling investors to move funds to more secure markets and assets, especially away from high-flying, low-yielding tech names. In Korea, the housing market is starting to turn as the cost money increases.

Crypto turmoil, starting with the crashes of TerraUSD and Luna and continuing with bitcoin volatility and the cracking of the tether peg, has raised the possibility of systemic failures and a daisy chain of instability.

The Federal Reserve raised its benchmark policy rate by 0.75 percentage points last week, after earlier assuring the markets that the increase would not be as great, and said another adjustment of that size was possible next month. Last Thursday, Bank of Korea Gov. Rhee Chang-yong said inflation is of the utmost importance.

The next board meeting takes place on July 13. Korea's current base interest rate stands at 1.75 percent, compared to the 1.5 percent-to-1.75 percent range in the United States.

Inflation in the United States hit 8.6 percent in May from the year-earlier period, the highest since December 1981. Consumer prices in Korea rose 5.4 percent in the same period, the most in more than 13 years.

Rate increases have been adding pressure on debtors, with forecasts that mortgage loan rate at commercial banks may break 8 percent this year, the first since December 2008.

The average fixed mortgage rate at four commercial banks — KB Kookmin, Shinhan, Hana, Woori — was between 4.33 and 7.14 percent as of June 17, compared to 3.6 and 4.98 percent at the end of last year.

"There's no portfolio strategy for some time," said Jay Kim, an analyst at Sangsangin Securities in a Monday report. "Reversal of situations, like the end of or a truce in the Ukraine war, or a clear fall in price indexes, will have to be seen."

Kim lowered his Kospi forecast over the next three months to a range of 2,300 to 2,600 from the previous 2,400 to 2,700.

"Market volatility will last for some time amid fears that inflation may be uncontrollable and concerns for monetary tightening and economic recession," wrote Seo Jung-hun, a senior analyst at Samsung Securities, in a report on Monday. "Economic recession is an established fact considering the almost 30 percent collapse of domestic market from its peak."

The won hit 1,295.30 won per dollar on Monday, down more than 10 percent on year. The last time won was this low, excluding the past week, was following the pandemic in March 2020.

On Sunday, the fuel tax cut was increased to 37 percent from 30 percent starting next month. The lowered rate will be effective until the end of the year.

The average gasoline price at gas stations nationwide on Monday was 2,111 won per liter, up more than six percent on month, according to Opinet, the Korea National Oil Corporation's official oil price management system website.

Concerns for global economic recession have been raised "because of the large volume of liquidity unleashed and high interest rate policy around the world to ease high inflation, so there are no fundamental ways to respond," said President Yoon Suk-yeol on Monday. "The government is doing its best to cool down inflation."

Lee Bok-hyun, chief of the Financial Supervisory Service, stressed on Monday the importance of banks to preemptively manage vulnerable borrowers in order to lead to the soft landing for the economy.

BY JIN MIN-JI [jin.minji@joongang.co.kr]