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| Stock traders work in front of an electronic sign board in a dealing room at a branch of Hana Bank in Seoul, Thursday. Yonhap |
The local stock market is expected to see a stable but bullish sentiment alongside a steady appreciation of Korea’s currency, after the U.S. Federal Reserve announced Wednesday (local time) that it would keep its policy interest rate at near zero for possibly years to come despite recent signs of economic improvement.
The benchmark KOSPI rose 0.61 percent to 3,066.01, Thursday, from the previous session after hitting an intraday high of 3,090.19. The won strengthened to 1,123.70 against the dollar, up 5.8 won, or 0.51 percent, from the previous session on a steady uptick since March 10 when it hit a low of 1,142 won.
Thursday’s close in the country’s equity market followed subdued concerns about a possible hawkish turn by the Fed amid increasingly strengthening prospects of economic growth coupled with an over 2 percent inflation rate in the U.S.
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| Federal Reserve Chairman Jerome Powell / REUTERS |
The U.S. central bank now sees the economy growing 6.5 percent in 2021, and the unemployment rate decreasing to 4.5 percent by year’s end, compared to growth of 4.2 percent and an unemployment rate of 5 percent projected at the previous policy meeting in December last year.
Also dispelled were concerns of market jitters brought on by a sharp rise in the yield on U.S. Treasuries. The 10-year Treasury yield was around 1.63 percent Wednesday after having jumped to as high as 1.69 percent, a level not seen since January 2020.
Reflective of what the market considered a highly positive signal was the Dow Jones Industrial Average closing at a record high of 33,015.37, Wednesday (local time), up 189.42 points, or a gain of 0.6 percent in just five trading days after clearing the 32,000 milestone. The index exceeding the 33,000-mark was the fastest 1,000-point gain, according to Dow Jones Market Data.
The S&P 500 also reached a record after rising 0.3 percent to 3,974 after falling 0.7 percent earlier in Wednesday’s session, while the tech-heavy Nasdaq composite gained 0.4 percent.
“The local stock market will stabilize, due in large part to the reduced risk of an interest rate hike,” according to a report released by Korea Investment & Securities.
The risks of sooner-than-expected tapering, or an end to the Fed’s bond-buying, and a rate hike have been largely pushed back, which in turn has led to lower-than-feared volatility in the financial market, the report said.
Fed Chair Jerome Powell said during a press conference, “Until we give a signal, you can assume we’re not there yet,” reiterating that the U.S. central bank was not ready to taper.
This according to the brokerage is a confirmation of the Fed’s “Behind the Curve” strategy, defined by adjusting liquidity as events unfold instead of seeking to give signals, thereby managing expectations in advance.
“Uncertainty remains as the additional extension of the supplementary leverage ratio has yet to be confirmed. But the delay in rate hike will keep the market somewhat insulated from shocks,” the report said.
The Fed’s recent announcement gives room for the Bank of Korea to be patient in raising its key policy rate, according to Seoul National University economist Kim So-young.
“The Fed said the ultra-low policy will continue through 2023, so Korea’s central bank is in no rush to abandon the current accommodative stance.”