South Korean stocks rally, currency firm after US Fed announcement

South Korea’s benchmark stock index hit a near two-year high Thursday, while the local currency strengthened more than 1 percent, following the US interest rate hike overnight.

The Korea Composite Stock Price Index surged to 2,155 points soon after trade began before closing up 0.8 percent, or 17.08 points, to 2,150.08 points Thursday. It marked the highest since April 27, 2015. 

Foreign investors, who account for more than 30 percent of South Korea’s stock market, bought a net 271 billion won ($239 million) on the Kospi bourse, continuing a buying spree for nine consecutive days.

Thursday’s gains were subdued as institutional and individual investors together sold off a net 318 billion won. 

The tech-heavy Kosdaq rose 0.85 percent to close at 613.88 points.

Thursday’s biggest gains came from shipping, shipbuilding and steel stocks due to increases in raw materials and oil prices. Shipbuilding companies soared 6.3 percent on average while shipbuilding and steel firms gained more than 4 percent.

The US Federal Reserve hiked policy interest rates by 25 basis points to a range of 0.75 to 1 percent in a second rate hike in three months. Federal Reserve Board Chair Janet Yellen hinted at a more gradual pace of monetary tightening this year than many had originally expected.

“As Yellen indicated a gradual interest hike and showed confidence in the economy, some of the market concerns were dispelled,” said Suh Bo-ik, an analyst with Yujin Investment & Securities Co.

In addition to the interest hikes, the country’s stock market was boosted as some uncertainty has been cleared after former President Park Guen-hye was ousted from office last week. Listed companies had logged record-high net profits in 2016.

The combined net profits of 1,901 listed firms on the main bourse Kospi and Kosdaq were estimated to be 107 trillion won and their combined operating profits at 158 trillion won, according to a report by securities firm Mirae Asset Daewoo.

Meanwhile, the local currency closed at 1,132 won against the US dollar, down 11.6 won from the previous session, at close on Thursday.

“Despite the Fed interest hike, the Fed’s stance was less hawkish than expected, weakening the US dollar against major currencies.” Jeon Seung-ji, a foreign exchange analyst at Samsung Futures wrote in a report Thursday.

The Fed’s less hawkish stance also sent bond yields on a slide Thursday.

Some investors had bet on a more aggressive stance by the Fed, as recent data showed an improvement in the US economy and their speculation had priced in the previous sessions early in March. But the Fed meeting stuck to its projection that to raise rates a total of three times this year.

The yield for three-year Korean government bonds stood at 1.695 percent, down 6.4 basis points from the previous session, wiping away most of the March gains.

By Park Ga-young (gypark@heraldcorp.com)