Reassurance by the U.S. Federal Reserve Chairwoman nominee Janet Yellen that it will maintain its quantitative easing until the country has made progress in growth and employment has boosted global stocks, including Korea’s last week.
The Korean benchmark KOSPI rebounded above the psychologically important 2,000 threshold for the first time in six trading days last Friday, driven by improved investor sentiment following Yellen’s support for an easy money policy.
However, global markets, including Korea, will have to brace for choppy trading given that expectations for monetary stimulus cuts in the U.S. still exist as Yellen told the Senate Banking Committee that its monthly bond-buying program could not continue “indefinitely.”
“There is a chance that the tapering will begin and end in 2014,” said Lee Sang-jae, an economist at Hyundai Securities. “There is a possibility that the markets could undergo ‘excessive corrections’ after rallies led by continuous liquidity injections.”
Although the Fed nominee did not give specific details regarding the timeline or the scale of its impending monetary cuts, Yellen said that there were costs associated with its unorthodox monetary policy.
Some U.S. lawmakers also mentioned concerns over the possibility of its easy money triggering inflation, which could diminish consumers’ purchasing power.
Monetary easing moves by advanced countries caused investors to set their sights on riskier and higher-yielding emerging markets, while expectations for monetary reduction would lead them to relocate their investments back to their homelands.
Weekly foreign selling came to 260 billion won ($243.5 million), and institutions also offloaded a net 80 billion won.
Individuals, in contrast, net purchased stocks worth 340 billion won.
Analysts say that the Korean stock market is expected to rally in the short term led by IT shares including those of Samsung Electronics and SK Hynix on the back of rosy earnings outlooks.
By Park Hyong-ki and news reports
(
hkp@heraldcorp.com)
