Key points
- The Kospi rose to a record 7,216.62 on Aug 18, up 3.42%, then closed down 1.55% at 6,869.83.
- Foreign desks bought Samsung and SK Hynix hard at the open, then faded to a small net buy by the close, a 5th straight buying day.
- Institutions sold 1.19 trillion won ($845M) into the rally, and the Kospi lost the whole gain.
The Kospi surged to an all-time high on the morning of Aug. 18, and lost all of it by the close. It reached 7,216.62 near the open, up 3.42 percent, and it finished at 6,869.83, down 1.55 percent.
Foreign desks drove the morning gain. They bought Samsung Electronics and SK Hynix from the first minutes. The two chip stocks pulled the index above 7,200 for the first time.
The selling started after about 10 in the morning. Korean institutions sold 1.19 trillion won ($845M) of stock on the day. That was enough to erase the whole gain.
Foreigners did not turn into sellers. They stopped buying as hard. By the close they were net buyers of only 46.8 billion won ($33M), down from more than 1.5 trillion won ($1.08B) early in the day. It was still their fifth day of buying in a row. Individuals were the biggest net buyers on the day.
What turned the market
The US 30-year Treasury yield rose to 5.304 percent on Aug 18. That is its highest level in more than 19 years. Higher long-term US rates make stocks look expensive around the world. Rising tension between the US and Iran added to the caution. Korean brokerages also pointed to plain overheating, since the index had climbed far in a short time.
The won at a 10-month high
The Korean won closed at 1,411.8 to the dollar. That is its strongest level in 10 months, since early October. A stronger won tends to come with foreign buying, because foreign investors need won to buy Korean shares.
Park Sang-hyun, an economist at iM Securities (iM증권), expects that to continue. He wrote on Aug 18 that the won will trade around the 1,410 level for now. He added that "as foreign investors keep net buying Korean stocks and prices rebound, the move toward the 1,300 won range will strengthen." His firm put this week's range at 1,380 to 1,430 won.
Foreigners have been the steadier hand in Korea this month. They net bought about 6.5 trillion won ($4.6B) of Korean stock last week alone. Local investors have mostly been on the other side, buying the falls and selling the recoveries, a pattern I wrote about last week.
The won's turn toward strength is newer. For most of the year the money was moving the other way, out of the country and into overseas assets, which kept the won weak. I covered that here.
Meanwhile, the smaller Kosdaq market fell harder than the main board. It closed at 834.20, down 3.52 percent.
Sources
- 뉴스핌, 코스피, 기관 1.2조 매도에 7200선→6800선 후퇴, on the Aug 18 close and the institutional selling that reversed the market.
- 비즈니스포스트, iM증권 박상현 연구원의 원/달러 환율 전망 보고서, on the won outlook and the Park Sang-hyun forecast.
This is general market commentary and not investment advice.
