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| An electronic board set up at a dealing room of Hana Bank in Seoul indicates stock falls on Monday. The benchmark KOSPI closed down 1.49 percent at 2,792, the lowest level in 13 months. Yonhap |
Stock bubble feared to burst on rate hikes: overseas experts
By Lee Min-hyung
The Korean stock market tumbled Monday in the wake of Wall Street's fall last week stoked by jitters over the Fed's looming rate hikes, analysts said Monday.
As expected, the benchmark KOSPI and junior Kosdaq extended losses as foreign and retail investors went on a selling spree. The main bourse closed at 2,792 points, down 1.49 percent or 42.29 points from the previous session, which was the lowest level since Dec. 23, 2020, while the tech-heavy Kosdaq dipped by nearly 3 percent or 27.55 points to finish at 915.40.
This escalated fears that the Korean stock market has entered a bear phase after ending a bull run that continued for the past two years after the outbreak of the COVID-19 pandemic in early 2020. Analysts also sent a series of warnings to the market, saying that U.S. stocks are approaching the end of a "superbubble."
Jeremy Grantham, an influential British investor, said in a recent report: "For the first time in the U.S., we have simultaneous bubbles across all major asset classes."
JPMorgan CEO Jamie Dimon also urged investors to brace for the aftermath of a more hawkish-than-expected policy shift from the Fed, saying that there could be "six or seven interest rate hikes" no later than the end of 2022.
Goldman Sachs also said in a recent note to investors that the Fed may increase the key rate more than five times this year due to inflation woes there.
U.S. stocks already displayed volatility for the past few trading days amid an outlook of faster monetary tightening in the world's largest economy. On Friday, the S&P closed down 1.89 percent, reporting the biggest fall since September 2020. The Nasdaq also plunged 2.72 percent.
Market analysts voiced concerns that the Korean stock market will continue facing an adjustment period, as few optimistic signals are being detected to help it regain recovery momentum.
The market is particularly paying attention to possible messages to be shared at the upcoming Federal Open Market Committee (FOMC) meeting scheduled for Jan. 25 and 26. If the Fed delivers any stronger-than-expected signals for rate hikes throughout this year, stocks in the U.S. and Korea are expected to face additional downward pressure, they said.
"We leave open the possibility that the stock market will widen its volatility further before any risks from the uncertainty of the Fed's monetary policy are mitigated," Hi Investment & Securities analyst Park Sang-hyun said.
Against this backdrop, the result of the upcoming FOMC meeting will be a major turning point to drive the future course of the stock market here and abroad, according to Park.
Despite escalating fears of global equity markets, it remains unclear what cards the Fed will play to minimize the risks on its monetary policy, the analyst said.
"The focus should be on how much the Fed will alleviate risks of monetary uncertainty during the upcoming meeting," he said. "But the problem is that there appears to be no clear card that the Fed can play to hedge risks on monetary uncertainty due to lingering inflationary pressure."
