Fed Rate Hike Widens Korea-U.S. Gap, Squeezing Bond Issuers

* Editor's note: AI PRISM (Personalized Report & Insight Summarizing Media) is an artificial intelligence-based personalized news recommendation and summary service developed with support from the Korea Press Foundation. It selects and provides six news items tailored to each reader type.

1. Won Jumps 13.6 Won in a Day; Companies on Edge Over Further Bond Yield Gains

Key summary: After the Fed raised its benchmark rate by 0.25 percentage point for the first time in three years and two months, the won surged 13.6 won in a single day to close at 1,382.2 per dollar. With the three-year Korean government bond yield breaking above 4% and the U.S. 10-year yield above 5%, analysts largely agree that structural volatility has risen sharply. The yield on three-year AA- rated corporate bonds jumped to 4.716%, the highest since November 2023, sharply raising funding costs for companies that had put off bond issuance. With the Bank of Korea seen as possibly moving to another hike at its November rate-setting meeting after confirming third-quarter growth, both companies and markets have shifted into a defensive posture.

2. KOSPI Weathers Hawkish FOMC; Oil Must Be Tamed for Range Breakout

Key summary: With rate hike concerns already largely priced in, the KOSPI fell just 2.56 points, or 0.04%, from the previous session, a sign that it absorbed the hawkish FOMC shock relatively well. Still, with foreign investors selling a net 12.86 trillion won so far this month and investor deposits falling back below 100 trillion won, it is hard to say sentiment has fully recovered. Warnings also emerged that the KOSPI could stay around the 6,000 level if international oil prices remain above $100 a barrel for another two to three months. Brokerages advised that a stable portfolio centered on bank and semiconductor shares is more favorable than an aggressive one at this point.

3. Doosan to Invest 1 Trillion Won in CCL Expansion, Betting on Chip Materials

Key summary: Doosan disclosed plans to invest about 970 billion won in production facilities for copper clad laminate (CCL), a core material for AI chips, in the largest bet since the company's founding. The plan calls for 420 billion won at home to expand CCL production lines for optical modules and 550 billion won in China to build a new plant for AI accelerators and network switches. With domestic utilization already above 100%, Fortune Business Insights projects the global CCL market will grow about 52% by 2034. With Nvidia as a key customer, analysts expect Doosan to benefit directly from expanding big tech investment in data centers.

4. KOSPI Ends Slightly Lower on Hawkish FOMC Caution; Foreigners Sell Net 2.2 Trillion Won

Key summary: The KOSPI rose as much as 1.15% during the session but turned lower in the afternoon as foreign selling intensified, closing at 6,715.41. Foreign investors concentrated their selling in large-cap chip shares including Samsung Electronics (005930.KS) and SK hynix (000660.KS), selling a net 2.28 trillion won on the day alone and extending net selling to a seventh straight session this month. Other corporations, influenced by share buybacks at Samsung Electronics and SK hynix, bought a net 1.7045 trillion won, absorbing some of the foreign supply and limiting the decline. Whether foreign buying recovers has emerged as the key variable for the index's direction.

5. Nasdaq Doubled When Rates Rose During Dot-Com Bubble

Key summary: A Seoul Economic Daily analysis of four major rate-hike cycles over the 30 years since 1996 found the Nasdaq rose in every one of them. During the dot-com bubble, the Nasdaq surged as much as 88% while the Fed raised rates six times, and it rebounded 39% from its low even during the big-step hikes of 2022. By contrast, the Nasdaq's steepest declines — 77.9% during the dot-com bubble and 55.6% during the financial crisis — both began while the Fed was cutting rates. The analysis suggests how investors respond when policy turns to cuts matters more than the hikes themselves.

6. Korean Investors Hold Leveraged ETFs Too Long; Set Loss Limits and Exit Points

Key summary: TRADR ETFs, a U.S. leveraged ETF manager, said Korean investors tend to hold leveraged ETFs longer than U.S. investors do. Leveraged ETFs track daily returns, so the longer they are held, the more cumulative distortion pushes results away from an exact multiple of the underlying asset's return, the firm said. Of TRADR ETFs' roughly $5 billion in total net assets, holdings by Korean investors amounted to $438.3 million, or about 9%. The firm advised against letting leveraged ETFs take up an excessive share of a portfolio and recommended setting clear entry and exit prices and loss limits in advance.

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