Business major

Concerns over rates and China lead to major pullback for Kospi

A billboard at Hana Bank in central Seoul shows the Kospi which closed at 2,864.24 points on Tuesday, down 0.89% from Monday. [YONHAP]

The Kospi closed below 2,900 points for a second straight day on Tuesday on concerns over a rate hike by the US Federal Reserve and slowing growth in China, where private consumption is weak.

It ended Tuesday at 2,864.24, down 0.89%, after Monday’s 1.09% drop to 2,890.1.

The benchmark had been trading above 3,000 for about 50 days. It is down more than 10% from its peak reached last summer.

Institutional investors sold 226.9 billion won ($190 million) of shares on Tuesday, while overseas investors bought 5.2 billion won and retail investors bought 207.8 billion won.

The long-awaited Federal Reserve rate hikes appear to be spooking equity investors. President Jerome Powell said last week that the economy was both sound enough and needed tighter monetary policy.

“If things develop as expected, we will normalize policy, which means we will end our asset purchases in March, which means we will raise rates during the year,” he said. he told the Senate Banking Committee on Tuesday. .

JPMorgan CEO Jamie Dimon said on the bank’s earnings call on Friday about the rate increases: “I think there’s a good chance there will be more than four. It could be six or seven.”

The Bank of Korea raised the benchmark rate by 0.25 percentage point to 1.25% last week, bringing interest rates back to pre-pandemic levels.

Sluggish growth in China is another factor that appears to be dragging the index down, with China being the biggest importer of Korean products. The country’s gross domestic product (GDP) grew 8.1% last year, slightly faster than the market consensus of 8%.

But growth slowed during the year.

China recorded 18.3% growth in the first quarter, followed by 7.9% in the second quarter, 4.9% in the third quarter and 4% in the fourth quarter.

Its economy has suffered from high unemployment and weak retail sales growth.

Last month, China’s unemployment rate was 5.1%, above the estimate of 5%, and retail sales growth was 3.9%.

“The unemployment rate in China is measured very conservatively, so the actual unemployment rate will be much worse,” said Kim Kyung-hwan, researcher at Hana Financial Investment. Kim added that private consumption in China “is shockingly bad.”

Subscriptions to LG Energy Solution’s initial public offering (IPO) by retail investors may also have affected the index, as they raised funds to invest in the offering by selling shares they own.

More than 20 trillion won was collected in deposits in the first four hours on Tuesday. The subscription lasts until Tuesday.

LG Energy Solution is expected to be released on January 27.

BY JIN MIN-JI [[email protected]]