Korean stocks ended higher Tuesday as foreign investors continued their buying spree following overnight gains on Wall Street where the main equity indices rallied on increased hiring.
The benchmark KOSPI closed at 1,991.23, up 0.14 percent, spurred by a bull market on Wall Street as Brexit concerns moved to the background. Manufacturing expansion in the eurozone, led by Germany, boosted investor confidence with Germany’s purchasing manager’s index climbing to a 28-month high of 54.5 last month.
The S&P 500 jumped 0.3 percent, or 7.26 points, to a record high of 2,137.16 on Monday on news that the U.S. added 287,000 jobs last month. The Dow Jones Industrial Average closed at 18,226.93, up 0.4 percent.
The won-dollar exchange ended up 1.3 won at 1,148 won as the Japanese yen depreciated against the U.S. dollar following the Japanese government’s renewed commitment to spur the economy with stimulus measures.
The local stock market opened strongly, reaching an intraday high of 1,998.03 on positive external factors and domestic earnings expectations. Samsung Electronics, which kicked off the earnings season, reported its operating profit at 8.1 trillion won in the second quarter, above its initial forecast of 7.6 trillion won.
However, analysts say the market was not immune to the slowdown, which could be further beset by corporate restructuring and high unemployment in Korea, even though the central bank’s rate cut to 1.25 percent in June would support domestic demand.
“Korea’s export-oriented economy is struggling with a downturn in global demand, further exacerbated by the high level of private debt. Difficult operating conditions are weighing on hiring plans, hurting domestic demand and dampening inflation,” said Moody’s Analytics in a report.
“If conditions continue to deteriorate, further (monetary) easing is on the cards later in 2016.”
The Bank of Korea is expected to convene its monetary policy committee meeting this Thursday. Analysts expect that the central bank will keep its interest rate steady, noting its recent rate cut, which BOK Gov. Lee Ju-yeol said was aimed to preemptive deal with the country’s low growth prospects.
He also mentioned about Korea’s extremely high household debt reaching above 1,200 trillion won, hinting the difficulties in further lowering its borrowing costs.
The BOK and the U.S. Federal Reserve will be two of the first central banks worldwide to hold policy meetings after the U.K.’s vote to leave the European Union.
The Fed will be holding its meeting on July 26-27, but analysts do not expect the U.S. to raise its key interest rate, despite an increase in employment.
By Park Hyong-ki (hkp@heraldcorp.com)