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Fed hike dents Korean stock markets

South Korea’s stock markets dipped Thursday after the US Federal Reserve on Wednesday decided to raise its benchmark interest rate by 0.25 percent and shrink its balance sheet.

The benchmark indexes -- the Korea Composite Stock Price Index and Korean Securities Dealers Automated Quotations -- sank along with other Asian markets in Tokyo, Hong Kong and Shanghai.

The Kospi closed at 2,361.65, down 0.46 percent, compared to Wednesday, while the Kosdaq slid 0.26 percent in closing from a day earlier. 

(Yonhap)
(Yonhap)
In the first-tier market, losers outnumbered gainers 555 to 236, but the giants showed rallies. Market bellwether Samsung Electronics rose 0.71 percent and the second-largest SK hynix soared 2.19 percent.

Kakao, a day after its board approved the transition to the Kospi market from the Kosdaq market, fell 0.85 percent. The second-largest stock in market capitalization on the second-tier Kosdaq market is expected to gain approval for the entrance from the operator Korea Exchange on June 23.

“Having sufficiently priced in hopes for positive tailwinds (in terms of economy, policy, and corporate earnings), the index appears to be in overbought territory for now,” wrote Chung Yon-woo, a strategist at Daishin Securities.

Treasury yields for South Korea‘s sovereign bonds slipped. At around 4 p.m., Thursday, the three-year treasury yields edged down to 1.683 percent from 1.685 percent Wednesday, while the 10-year bond yields fell to 2.112 percent from 2.174 percent.

But the Fed rate hike will eventually bring about soars in the yields, with long-term bond rates steeper than those of short-term bonds, wrote Lee Su-jung, a strategist at Meritz Securities. The widening curves indicate domestic economic condition arrived at its peak.

“We believe the US Fed will not tighten its belt abruptly, based on its experience,” Lee wrote. “If the 10-year US treasury yield flattens at around 2 percent, South Korea‘s bond yields will rise and stock markets will continue to be bullish.”

The local currency weakened by 2 won to 1125.5 won against the dollar as of 4:30 p.m.

The second US hawkish move of this year came amid signs of confidence both in business and households in the US. US Fed Chair Janet Yellen also signaled another rate hike this year.

By Son Ji-hyoung (consnow@heraldcorp.com)
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