(LEAD) Top exchange’s turnover plunges amid US monetary tightening

(ATTN: UPDATES with more details in last 5 paragraphs)

SEOUL, May 08 (Yonhap) — Turnover in South Korea’s main stock market plunged to levels similar to those seen during the onset of the COVID-19 pandemic as investors fret over monetary tightening American, according to data released on Sunday.

The average daily turnover of the KOSPI market was 10.7 trillion won ($8.4 billion) during the period from April 6 to May 6, down 33.6 percent from the previous year, according to data from the Korea Stock Exchange.

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

In January 2021, the average daily trades of the KOSPI market soared to 26.4 trillion won. This year, revenue remained at around 10 trillion won after rebounding from an annual low of 9.9 trillion won in December last year.

The slowness in stock trading came as investor sentiment was weakened by expectations of aggressive rate hikes from the US Federal Reserve.

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

Market experts expect the Fed to raise the interest rate by half a point in June and July.

“The financial market is expected to experience volatile trading in the coming months, depending on U.S. inflation and employment data,” said Huh Jin-wook, an analyst at Samsung Securities Co.

Concerns over capital flight have arisen as the interest rate differential between South Korea and the United States could be reversed amid the Fed’s aggressive rate hikes.

In April, the Bank of Korea (BOK) raised its key rate by a quarter of a percentage point to 1.5%, the fourth rate hike since August last year. The BOK may make a consecutive rate hike to 1.75% at its policy meeting scheduled for May 26 to rein in inflation and reduce household debt.

If the Fed raises the fed funds rate by 0.5 percentage points in June and July, the US policy rate will rise to a range of 1.75 to 2%.

Won weakness has accelerated in recent weeks as the Fed’s decision boosted demand for safer assets, raising concerns about capital outflows.

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

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