South Korean stocks extend losses, market ramps up bets on another rate hike
- The benchmark KOSPI index traded 1.1% lower at 6,190
South Korean shares dipped marginally on Tuesday, extending losses into a second session, amid persistent concerns about the durability of the AI trade and the risk of a second consecutive interest rate hike this month.
The benchmark KOSPI index traded 1.1% lower at 6,190, as of 0354 GMT.
The index shot up 2.1% in early trading but reversed course within minutes to fall as much as nearly 3%.
Memory chipmaker Samsung Electronics fell 2.30%, while rival SK Hynix lost 2%.
The two stocks account for more than half of the KOSPI gauge, and are at the heart of the global AI trade and the key drivers of the sharp volatility that has gripped Korean markets.
Data released earlier in the day showed cheaper crude oil helped pull inflation down to a lower-than-expected 2.8% in July, marking its lowest level in three months.
However, the figure remains above the central bank’s medium-term target of 2%, keeping the bets of an August rate hike firmly on the table.
Markets are pricing in around a 70% chance of a hike later this month.
The Bank of Korea said it would closely monitor price conditions, as core inflation was expected to remain high due to the spillover effects of high oil prices and growing domestic demand, spurred by record profits in the chip industry.
“Core CPI inflation is likely to stay at around 2.8%-3.0% year-on-year for a longer period due to the time lag on core CPI goods inflation and strong demand-side inflationary pressure,” said Kim Jin-wook, an economist at Citi Korea.
“We keep our view for a back-to-back 25 basis points hike at the August 27 MPB (monetary policy board) meeting.”
The Bank of Korea hiked its benchmark interest rate for the first time in three-and-a-half years to 2.75% in July.
Meanwhile, Finance Minister Koo Yun-cheol said at a cabinet meeting that he would work to ease the volatility in the stock market and would swiftly implement recently announced measures to curb the use of single-stock leveraged ETFs.
Elsewhere on the KOSPI, Hyundai Motor and sister automaker Kia Corp were down 2.29% and down 0.69%, respectively.
Steelmaker POSCO Holdings added 1.48%, while drugmaker Samsung BioLogics rose 2.67%.
Foreigners were net sellers of shares worth 50.0 billion won ($34.98 million).
The won was last quoted at 1,428.1 per dollar on the onshore settlement platform, as of 0354 GMT, marginally higher than its previous close at 1,429.5.