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Fed’s cut fails to assuage markets, Kospi falls

Korea’s investors expected more from U.S. Federal Reserve
Mar 17,2020
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Stockbrokers watch a screen in despair in the dealing room of KB Kookmin Bank in the country’s main finance and investment banking district of Yeouido, western Seoul, Monday. The benchmark Kospi fell by 3 percent to close at the 1,710 mark following an emergency announcement by the Federal Reserve cutting U.S. interest rates to near zero. The Kospi closed at 1,714.86, a 56.58 point drop from the previous day. [YONHAP]
Korea’s stock market didn’t rally on the U.S. Federal Reserve’s cutting of interest rates. Key indexes continued to sink Monday, along with other Asian markets, on fears that the world economy is in free fall over the coronavirus crisis.

The benchmark Kospi started Monday trading with a 1.92 percent gain reaching 1,805.43.

But it soon fell below the 1,800 mark with a massive sell-off by foreign and institutional investors, closing at 1,714.86, down 3.19 percent from Friday’s close. The tech-heavy Kosdaq closed at 504.51, a 3.72 percent drop.

On the Kospi, foreign investors sold a net 680.3 billion won ($554 million) and institutional investors shed a net 340.8 billion won. Retail investors maintained their buying spree, purchasing a net 926.4 billion won.

Gloom spread throughout the region.

Japan’s Nikkei 225 fell 2.46 percent to close at 17,002.04. The Shanghai Composite Index slipped by 3.4 percent, and Hong Kong’s Hang Seng Index plunged by 4.38 percent.

The Federal Reserve made an earlier-than-expected rate cut Sunday in an attempt to contain the economic fallout from the coronavirus pandemic. The two-day Federal Open Market Committee meeting was originally scheduled to start today.

Global markets, however, were not impressed by the Fed’s decision with key Wall Street indexes showing immediate drops.

Dow Jones futures plunged 4.5 percent, and S&P 500 futures was down 4.8 percent Sunday. Nasdaq futures also dropped by 4.5 percent. On Friday those indexes rebounded after crashing into bear market territory - posting a 20 percent drop from its latest peak - on Thursday.

“Investors in Korea were expecting more aggressive economic measures from the United States such as purchases of corporate bonds,” said Noh Dong-kil, an analyst from NH Investment & Securities. “Then the second downer came around 11 a.m. this morning when key economic indicators in China were way worse than expected.”

China’s industrial output was badly hit by the Covid-19 pandemic. Industrial output dropped 13.5 percent in January and February, and the urban unemployment rate jumped to 6.2 percent in February, a government report said Monday.

In a belated response to the U.S. rate cut, Korea’s central bank convened an extraordinary monetary board meeting Monday and announced a 50 basis point cut to the key interest rate, bringing it to a record low of 0.75 percent.

Analysts don’t expect an early end to the latest market volatility.

“The rate cut, no matter how much it will be trimmed, will not cure the current chaotic situation in the stock market,” said Noh.

“It is a bit too late now, but Korea is reluctantly following the United States’ and other countries’ leads. The stock market is now more responsive to global market trends.”

Market stabilization in the United States has to come first, analysts said.

“Foreign investors’ net sell-off almost coincides with the trend of the S&P 500,” said Kwak Hyun-soo, an analyst from Shinhan Investment. “U.S. stock market stabilization is the most concrete solution to the current volatility in the Korean market.”

The local currency continued to lose ground against the U.S. greenback.

BY JIN EUN-SOO [jin.eunsoo@joongang.co.kr]