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Massive rescue packages rev up local markets

A dealer passes by an electronic board showing the closing price of the benchmark KOSPI and the won-dollar exchange rate, at a dealing room of KB Kookmin Bank in Seoul, Wednesday. Yonhap
A dealer passes by an electronic board showing the closing price of the benchmark KOSPI and the won-dollar exchange rate, at a dealing room of KB Kookmin Bank in Seoul, Wednesday. Yonhap

By Lee Min-hyung

The Korean stock market went on a two-day long rally until Wednesday, as the introduction of stronger sets of pump-priming measures by the Korean and the U.S. governments strengthened investors' confidence against the coronavirus.

The benchmark KOSPI finished with an outstanding gain of 94.79 points, up 5.89 percent from a day earlier, closing at 1704.76. The secondary Kosdaq also closed at 505.59, up 1.87 percent, because of government announcements of implementing aggressive economic stimulus packages.

Foreigners net sold shares worth 333.1 billion won ($270 million), and institutional investors' net-selling came in at 105.3 billion won. Individual investors net purchased shares of 451.9 billion won.

The won-dollar exchange rate also showed signs of stabilization by closing at 1,229.9 won per U.S. dollar, down 19.7 won, Wednesday. This is the first time in seven trading days that the soaring exchange rate dropped to the 1,220-won range.

Of note is that the local stock and foreign exchange market is showing signs of stabilization shortly after Seoul and Washington announced surprise packages of economic stimulus measures.

The Korean government unveiled Tuesday its plan to inject 100 trillion won into the economy, following signs the local economy is falling into a recession following the coronavirus panic.

U.S. stocks also surged Tuesday on expectations for an upcoming economic stimulus bill to fight off the rapid spread of COVID-19 there. The Dow Jones Industrial Average reported an 11 percent gain on the day, the biggest single-day gain since 1933.

Last week, the Bank of Korea (BOK) signed a $60 billion currency swap agreement with the U.S. Federal Reserve amid concerns over a dollar shortage here. The worries stemmed from the recent exodus of foreign investors from the local stock market.

The central bank said Wednesday that both sides are in working-level talks to narrow their differences on an exact timeline to process the currency swap.

"Discussions are underway between the BOK and the U.S. Fed over signing a contract over the deal no later than the end of this week," Yoo Sang-dae, assistant deputy governor of the BOK, said. "Our goal is to provide dollars from the swap deal to the Korean market next week."

The swap line will be valid for at least six months, and the dollar supply will not be done at one time, according to the central bank.

Technical rally

Analysts said the recent stock market uptick can be seen as part of a technical rally, and it is too early to say that the upward momentum will last in a stable manner due to the pump-priming measures from Korea and the U.S.

"It is true that the latest upward spiral on the main bourse comes in part due to a sense of relief from investors after the governments from the U.S. and Korea announced a strong set of economic stimulus packages," Meritz Securities economist Kang Bong-joo said.

Following the announcement, a series of economic indices here have also taken a turn for the better in recent days, including the recent fall of the won-dollar exchange rate. This indicates that the government moves relieved virus-related concerns from investors to some extent, according to him.

"But we cannot say the recent rally is a meaningful rebound in that this was not driven by improvement in corporate fundamentals," he said. "Stocks can go up at any time after substantial falls. It is premature to have hopes that the KOSPI returned to the recovery track."

He remained pessimistic over the likelihood for the local stock market to continue its winning streak, as the pandemic shock in the U.S. and Europe remains in place.

"The number of coronavirus patients keeps going up in the West each day, so its aftermath will continue weighing on the local stock market until the second quarter of this year," he said.

The securities firm expected the benchmark index to be able to reach the 2,000-mark only after virus-related concerns subside.

"The key lies in whether economic activities here and abroad get back to normal for the index' complete recovery," the economist said. "It will take around six months for the local stock index to return to its normal condition, and the outlook comes under the assumption that the pandemic comes to a halt in Western countries by then."


A dealer passes by an electronic board showing the closing price of the benchmark KOSPI and the won-dollar exchange rate, at a dealing room of KB Kookmin Bank in Seoul, Wednesday. Yonhap
A dealer passes by an electronic board showing the closing price of the benchmark KOSPI and the won-dollar exchange rate, at a dealing room of KB Kookmin Bank in Seoul, Wednesday. Yonhap

By Lee Min-hyung

The Korean stock market went on a two-day long rally until Wednesday, as the introduction of stronger sets of pump-priming measures by the Korean and the U.S. governments strengthened investors' confidence against the coronavirus.

The benchmark KOSPI finished with an outstanding gain of 94.79 points, up 5.89 percent from a day earlier, closing at 1704.76. The secondary Kosdaq also closed at 505.59, up 1.87 percent, because of government announcements of implementing aggressive economic stimulus packages.

Foreigners net sold shares worth 333.1 billion won ($270 million), and institutional investors' net-selling came in at 105.3 billion won. Individual investors net purchased shares of 451.9 billion won.

The won-dollar exchange rate also showed signs of stabilization by closing at 1,229.9 won per U.S. dollar, down 19.7 won, Wednesday. This is the first time in seven trading days that the soaring exchange rate dropped to the 1,220-won range.

Of note is that the local stock and foreign exchange market is showing signs of stabilization shortly after Seoul and Washington announced surprise packages of economic stimulus measures.

The Korean government unveiled Tuesday its plan to inject 100 trillion won into the economy, following signs the local economy is falling into a recession following the coronavirus panic.

U.S. stocks also surged Tuesday on expectations for an upcoming economic stimulus bill to fight off the rapid spread of COVID-19 there. The Dow Jones Industrial Average reported an 11 percent gain on the day, the biggest single-day gain since 1933.

Last week, the Bank of Korea (BOK) signed a $60 billion currency swap agreement with the U.S. Federal Reserve amid concerns over a dollar shortage here. The worries stemmed from the recent exodus of foreign investors from the local stock market.

The central bank said Wednesday that both sides are in working-level talks to narrow their differences on an exact timeline to process the currency swap.

"Discussions are underway between the BOK and the U.S. Fed over signing a contract over the deal no later than the end of this week," Yoo Sang-dae, assistant deputy governor of the BOK, said. "Our goal is to provide dollars from the swap deal to the Korean market next week."

The swap line will be valid for at least six months, and the dollar supply will not be done at one time, according to the central bank.

Technical rally

Analysts said the recent stock market uptick can be seen as part of a technical rally, and it is too early to say that the upward momentum will last in a stable manner due to the pump-priming measures from Korea and the U.S.

"It is true that the latest upward spiral on the main bourse comes in part due to a sense of relief from investors after the governments from the U.S. and Korea announced a strong set of economic stimulus packages," Meritz Securities economist Kang Bong-joo said.

Following the announcement, a series of economic indices here have also taken a turn for the better in recent days, including the recent fall of the won-dollar exchange rate. This indicates that the government moves relieved virus-related concerns from investors to some extent, according to him.

"But we cannot say the recent rally is a meaningful rebound in that this was not driven by improvement in corporate fundamentals," he said. "Stocks can go up at any time after substantial falls. It is premature to have hopes that the KOSPI returned to the recovery track."

He remained pessimistic over the likelihood for the local stock market to continue its winning streak, as the pandemic shock in the U.S. and Europe remains in place.

"The number of coronavirus patients keeps going up in the West each day, so its aftermath will continue weighing on the local stock market until the second quarter of this year," he said.

The securities firm expected the benchmark index to be able to reach the 2,000-mark only after virus-related concerns subside.

"The key lies in whether economic activities here and abroad get back to normal for the index' complete recovery," the economist said. "It will take around six months for the local stock index to return to its normal condition, and the outlook comes under the assumption that the pandemic comes to a halt in Western countries by then."


Lee Min-hyung mhlee@koreatimes.co.kr


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