The local equity market will no longer be able to sustain its year-long bullish momentum, crimped by a dialing down of the COVID-19 pandemic-induced emergency expansionary monetary policy compounded further by possible large offloading of shares held by those seeking to avoid a tax rate of up to 25 percent on capital gains.
Such scenario is gaining traction due in part to growing uncertainty regarding the whereabouts of the country’s top semiconductor shares, the top market cap performers underpinning not only the benchmark KOSPI including Samsung Electronics and SK hynix but also their small business partners listed on the tech-heavy Kosdaq, said analysts, Sunday.
Despite Samsung Electronics’ brisk third-quarter performance, its share price remained sluggish to close at 69,800 won last week, down 1.27 percent from the previous session. This is a month-long downward trend from a high of 96,800 won on Jan. 11, echoed by SK hynix which hovers at around 103,000 won from a high of 150,500 won, March 2.
Also advancing the view is a prevalent wariness shared by investors about lingering fears of inflation and economic peak-out, the pessimism of some market watchers that say the economy could experience another bout of volatility despite the robust third-quarter profits.
The KOSPI sank 3.2 percent this month, closing at 2,970.68 last week, below the psychologically significant 3,000 mark. It slid 10 percent from June. The fourth consecutive decline from July was driven by foreign investors who net sold over 3.88 trillion worth of shares this month alone. Individual retail investors and institutional investors net bought 2.83 trillion worth and 737.6 billion, respectively.
Fed, BOK fears
The U.S. Federal Reserve is expected to initiate tapering, or reducing its bond purchases, starting November as inferred by the September meeting minutes of the Federal Open Market Committee (FOMC).
Most committee members, it showed, were betting that the reduction would happen, despite the continued spread of the Delta variant and disappointing U.S. jobs data, saying employment would be more than enough to meet the “substantial further progress” test. Specifics will be announced at the FOMC meeting scheduled for Nov. 2 and 3.
The expectation is furthered by a call made last week by Bill Ackman, head of Pershing Square Holdings with $13.1 billion under management, on the immediate need for the Fed to raise interest rates and start tapering. “We are continuing to dance while the music is playing, and it is time to turn down the music and settle down,” he tweeted, Friday (local time).
Similar such tightening is almost certain to be followed by the Bank of Korea (BOK) in November with its second 25-basis-points hike, following one in August when the record-low emergency monetary policy rate of 0.5 percent was brought to an end.
Investors’ appetite for riskier assets could undergo adjustments since central banks around the world are increasingly inching towards normalizing the ultra-low interest rates, a reason the upward momentum can only be so strong, according to a report by KTB Investment & Securities.
“The downward price volatility will be limited for the stock and commodity markets, the beneficiaries of the cheap liquidity,” it said. “However, chances are low for the strong performance over the past year to recur, since the emergency liquidity drained would mean heavier borrowing costs needed for risky financial investment.”
The local bond market has already factored in the possibility of the BOK’s November rate hike, as evidenced by the annual yields on the three-year treasury surpassing 2 percent this month, the first in three years since October 2018. The figure has risen to 2.103 percent as of October, up 17.4 basis points from 1.929 percent a month earlier.
