The KOSPI fell below the ‘psychological support line’ of 2,600 for the first time in a year and five months as the storm after the US Federal Reserve’s big step (a 0.5 percentage point increase in the key interest rate) raged every day. The U.S. stock market, which has been on an unstoppable upward trend since the novel coronavirus infection (COVID-19), is showing a sharp decline day by day, raising the anxiety of global investors.
Fears of stagflation (inflation amid a recession) in the global economy weigh on the market as distrust of the Fed’s monetary policy rises amid extreme inflation.
● Asian stock market on a roller coaster ride
The KOSPI closed at 2,596.56 on the 10th, down 0.55% (14.25 points) from the previous day. It is the first time since November 30, 2020 (2,591.34) that the 2,600 level has broken below the closing price. On that day, the KOSPI plunged more than 2% at the beginning of the market, pushing it back to 2,553.01. As low-priced buying by individual investors gathered, the decline gradually decreased, but it did not keep the 2,600 level. Individuals and institutions bought more than 285.4 billion won and 6.9 billion won, respectively, but they could not beat the sell-off by foreigners (-317.4 billion won). Foreigners have sold over 1 trillion won in KOSPI stocks in the last three trading days. The KOSDAQ index also showed a sharp decline of around 3% during the day, but ended at 856.14, down 0.55%.
On this day, the won-dollar exchange rate rose by 2.4 won (the won’s value fell) and closed at 1276.4 won, breaking a new high for three consecutive trading days. The exchange rate rose to 1278.9 won, close to 1280 won at the beginning of the market.
Major Asian stock markets also rode a roller coaster at once. On the same day, Japan’s Nikkei Average (-0.58%) and Taiwan’s Traceability Index (0.08%) also sank around 2% at the beginning of the market and then rebounded. China’s Shanghai Composite Index (1.06%) also fell more than 1%, but regained stability as the Chinese government’s economic stimulus package was announced, including support for recovery from the COVID-19 damage.
● High inflation-low growth fears overtake
The decline in the New York Stock Exchange was even greater the previous day. On the 9th (local time), the Nasdaq index plunged 4.29%, and the Dow Jones Industrial Average and S&P 500 also fell 1.99% and 3.20%, respectively. The decline of big tech companies such as Amazon (-5.21%), Meta (-3.71%) and Apple (-3.32%) was remarkable. The Nasdaq, which focuses on technology stocks, has fallen 26% this year alone.
Concerns about a global economic slowdown are growing as the Fed announces an additional big step amid the prolonged war in Ukraine and China’s lockdown measures. According to a Wall Street Journal (WSJ) survey last month, the probability of a recession within the next 12 months is 28%, higher than in January (18%). Microsoft founder Bill Gates said in an interview with CNN on the 8th that “the war in Ukraine and rising energy and food prices will accelerate inflation and force interest rate hikes, leading to a slowdown in the economy.”
The market’s attention is focused on the US Consumer Price Index for April, scheduled for the 11th. If the inflation rate, which soared to 8.5% in March, is somewhat lower, it will take a breather, but if it rises further, the financial market may be further shocked. Kim Ji-san, head of Kiwoom Securities’ research center, said, “If the US consumer price inflation rate is higher than the market forecast, the KOSPI could be pushed back to 2,480.” Shin Se-don, an emeritus professor of economics at Sookmyung Women’s University, said, “Fed Chairman Jerome Powell said there would be no giant step (a 0.75 percentage point increase in interest rates), but there is growing concern that the big step alone will not be able to keep prices down.”
Reporter Park Min-woo minwoo@donga.com
Reporter Lee Sang-hwan payback@donga.com