South Korea's KOSPI edged higher but again failed to hold above the 7,000 level, as volatility driven by U.S. Treasury yields sent the benchmark index swinging through the past week. This week's Sunday Money Cafe reviews the main variables that shaped the domestic market and looks at analysts' outlook for the week ahead.
The KOSPI closed at 6,687.21 on the 4th, up 107.73 points, or 1.64%, from the previous session, according to the Korea Exchange on the 6th. Foreign and institutional investors led the advance, turning net buyers for the first time in six sessions. Foreign investors bought a net 503.4 billion won, while institutions purchased a net 1.669 trillion won.
Other corporate entities, another driver of the index's gains, bought 1.5741 trillion won worth of shares. That group has been a net buyer for 13 consecutive sessions, as Samsung Electronics bought back its own shares for employee stock compensation and SK hynix purchased treasury shares for cancellation. Individual investors, by contrast, sold 3.7225 trillion won worth of stock to lock in gains.
Samsung Electronics and SK hynix, the chipmakers that anchor the domestic market, closed at 255,500 won, up 2.20%, and 1.647 million won, up 3.20%, respectively. Robotics shares stood out. After the government included sweeping tax incentives to nurture the robotics industry in next year's budget proposal, Robotis rose 22.54%, Wonik Holdings gained 29.91% and Samhyun advanced 10.34%.
Behind the KOSPI's failure to mount a clear rally over the week was pressure from rising U.S. Treasury yields. The surge in those yields weighed on investor sentiment in the Korean market as well. U.S. Treasury yields gradually stabilized on the 3rd after dovish comments from Federal Reserve officials. The 10-year U.S. Treasury yield traded at 4.769% on the 4th, down 1.1 basis points from the previous session. One basis point equals 0.01 percentage point.
With U.S. Treasury yields, the biggest variable for the domestic market, now steadier, attention has turned to when the KOSPI might rebound. Signals fueling those expectations are already emerging. The KOSPI 200 Volatility Index, known as Korea's fear gauge, plunged 3.09 points, or 7.28%, to close at 39.33 on the 4th, with an intraday low of 39.30. It was the first time the index closed below 40 in about six months, since Feb. 12 of this year, when it hit an intraday low of 39.13. The decline can be read as a sign that easing volatility has left more room for the KOSPI to climb.
Still, several factors are keeping investors cautious: the rate decision at this month's Federal Open Market Committee meeting, renewed tensions between the United States and Iran, and the release of August U.S. consumer price index and producer price index data, all of which could affect the domestic market.
So what do analysts expect for the coming week? "We expect the FOMC to hold the base rate in September, and if Treasury yields stabilize as the consensus for further rate increases converges toward zero, that will work to strengthen the market's rebound momentum," said Kwon Soon-ho, an analyst at Daishin Securities.
He said the KOSPI still has room to rebound because earnings and policy momentum remain intact even as the gap between fundamentals and valuations has widened, with the index's 12-month forward price-to-earnings ratio at just 5.19 times. Kang Jin-hyuk, an analyst at Shinhan Securities, said, "The steep appreciation of the yen, with the dollar-yen rate falling to the 155 level, could act as a source of instability in fund flows for some time, so it is worth watching as a variable for the domestic market."
