The KOSPI has absorbed the shock of the U.S. Federal Reserve's interest rate increase and moved close to the 6,900 level. The Fed left the door open to further tightening, but long-term U.S. Treasury yields fell instead, reviving investor sentiment around artificial intelligence and semiconductor stocks. Foreign investors also turned net buyers, raising hopes that the domestic market can pull out of its correction phase.
The KOSPI closed at 6,894.23 on the 18th, up 2.66% from the previous session, according to the Korea Exchange on the 20th. The KOSDAQ ended at 827.12, up 0.60%. The KOSPI was down 0.23% from 6,909.91 on the 11th, the end of the previous week, but recovered most of its midweek losses. Foreign investors turned net buyers for the first time in eight trading sessions.
Fed Lifts Rates 25 Basis Points, but U.S. Long-Term Yields Fall
The key variable that shook the domestic market this week was the September meeting of the Federal Open Market Committee. The Fed raised its benchmark rate by 0.25 percentage point, as the market had expected. The decision was unanimous, and the dot plot showed a majority of officials backing one more increase this year and another next year.
Fed Chair Kevin Warsh said inflation "is too high and has been too high for too long," stressing that price stability is the Fed's top priority. Warsh also judged that recent trends in the U.S. labor market, corporate profits and capital spending have been solid enough that financial conditions can hardly be considered sufficiently restrictive.
Markets are pricing in the possibility of further tightening. U.S. rate futures now reflect expectations that the upper bound of the benchmark rate, currently 3.9%, could rise to 4.0% in October and 4.2% in December before reaching 4.5% to 4.6% in the first half of next year.
Still, long-term U.S. Treasury yields fell despite an FOMC outcome more hawkish than expected. Analysts attribute the move to easing long-term inflation expectations after the Fed made its commitment to controlling prices clear. International oil prices, which had weighed on equities earlier, also declined this week.
"The odds of another rate increase this year have risen, but paradoxically long-term Treasury yields have turned clearly lower," said Kim Jong-min, an analyst at Samsung Securities (016360.KS). "This shows that the Fed's commitment to controlling prices is calming inflation expectations, and that the stock market is reading this as a removal of uncertainty."
Foreign Investors Return After Eight Sessions, Money Flows to AI and Chips
As rate pressure eased, foreign and institutional investors bought together, led by large-cap semiconductor stocks. Kim Seok-hwan, an analyst at Mirae Asset Securities (006800.KS), said on the 18th that "the KOSPI approached the 6,900 level on combined net buying by foreign and institutional investors." Expectations for improving supply and demand grew because foreign investors turned net buyers even as the won-dollar exchange rate rose for a fifth consecutive session.
Expectations for rising chip demand tied to expanding AI investment provided particular support for share prices. SK hynix (000660.KS) and Samsung Electronics (005930.KS) gained 2.5% and 0.6% this week, respectively. SFA Semicon (036540.KQ), a chip back-end packaging company, surged 28.1%, and foundry operator DB HiTek (000990.KS) jumped 19.2%. Sentiment was stirred by news that Marvell and GlobalFoundries are expanding production capacity for high-speed optical communication chips used in AI data centers, and that SK hynix has entered early talks with Intel on memory chip production in the United States.
Brokerages see a strong chance that the domestic market will continue to trade stock by stock, centered on AI and semiconductors, rather than rising across the index for the time being. KOSPI large caps are forming a symmetrical triangle, with lower highs and higher lows at the same time. The analysis holds that until a trend breakout accompanied by volume appears, investors should select stocks with clear earnings and growth rather than bet on the index itself.
"Large-scale new inflows will be limited until prices enter a genuinely stable path," Kim said. "Until a trend breakout accompanied by volume is confirmed, it is reasonable to respond with a stock-picking approach rather than betting on the index."
Foreign Flows Will Decide the 7,000 Level
The rising won-dollar exchange rate, however, could weigh on foreign investment flows. The rate climbed for a fifth straight session through the 18th as settlement demand from importers came in. The Bank of Japan's increase in its benchmark rate to 1.25% is another factor that could add volatility to global currency markets.
Next week, with fewer trading days ahead of the Chuseok holiday, the domestic market could see wider swings on lighter-than-usual volume. Korea's export and import figures for the first 20 days of September and China's loan prime rate for September are due on the 21st. The U.S. S&P Global purchasing managers' index for September is set for release on the 23rd, and a U.S.-China summit is scheduled for the 24th.
Whether the KOSPI can move back above 7,000 and hold there will ultimately depend on long-term U.S. Treasury yields and foreign investment flows. If Treasury yields stabilize lower and expectations for semiconductor earnings continue, the index is expected to attempt to retake the 7,000 level.
