Inventory decline continues as economic concerns rise

Hana Bank’s electronic billboards in central Seoul display indices in Korea on Monday. [YONHAP]

Korean stocks fell to a fresh 52-week low as indices and assets retreated globally and the crypto crash continued.

The Kospi ended Monday down 2.04% at 2,391.03. It is down 20% this year and 26% year on year and is trading where it was five years ago.

Foreign investors led the rout, selling 625.84 billion won ($485 million) worth of shares.

Both big and small names have been hit hard. Samsung Electronics, the country’s largest company, fell 1.84% to a new 52-week low, SK Inc. 3.02%, LG Electronics 3.22% and Korean Air Lines 4.85%.

Clear indications of higher interest rates are prompting investors to shift their funds to safer markets and assets, especially away from high-flying, low-yielding tech names. In Korea, the housing market begins to turn as the cost price rises.

The crypto turmoil, beginning with the TerraUSD and Luna crashes and continuing with bitcoin volatility and tether peg cracking, raised the possibility of systemic failures and a daisy chain of instability.

The Federal Reserve raised its benchmark policy rate by 0.75 percentage points last week, after assuring markets earlier that the increase would not be as large, and said another adjustment of this magnitude was possibly next month. Last Thursday, Bank of Korea Governor Rhee Chang-yong said inflation was of the utmost importance.

The next board meeting will be on July 13. Korea’s current base interest rate is 1.75%, compared to 1.5% to 1.75% in the United States.

Inflation in the United States rose to 8.6% in May from a year earlier, the highest since December 1981. Consumer prices in Korea rose 5.4% during the same period, the highest in more than 13 years.

Rate hikes have added pressure on debtors, with forecasts that the mortgage rate at commercial banks could hit 8% this year, the first since December 2008.

The average fixed mortgage rate at four commercial banks – KB Kookmin, Shinhan, Hana, Woori – was between 4.33 and 7.14% as of June 17, compared to 3.6 and 4.98% at the end of the year last.

“There hasn’t been a portfolio strategy for quite some time,” Sangsangin Securities analyst Jay Kim said in a Monday report. “Reversals, such as the end or a truce of the war in Ukraine, or a sharp drop in price indices, will have to be seen.”

Kim lowered his Kospi forecast over the next three months to a range of 2,300-2,600 from 2,400-2,700 previously.

“Market volatility will last for some time amid concerns that inflation is spiraling out of control and fears of monetary tightening and economic recession,” Seo Jung-hun, senior analyst at Samsung Securities, wrote in a report released on Monday. . “The economic recession is an established fact given the collapse of almost 30% of the domestic market since its peak.”

The won hit 1,295.30 won to the dollar on Monday, down more than 10% year on year. The last time won was also low, excluding last week, following the March 2020 pandemic.

On Sunday, the fuel tax cut was increased to 37% from 30% from next month. The reduced rate will be in effect until the end of the year.

The average price of gasoline at gas stations nationwide was 2,111 won per liter on Monday, up more than 6 percent month on month, according to Opinet, the official website of Korea’s petroleum price management system. National Oil Corporation.

Concerns about the global economic recession have been raised “due to the large volume of liquidity released and the policy of high interest rates around the world to mitigate high inflation, so there is no fundamental way to react “, President Yoon Suk-yeol said Monday. “The government is doing its best to calm inflation.”

Lee Bok-hyun, head of the Financial Supervisory Service, on Monday stressed the importance for banks to preemptively manage vulnerable borrowers to lead to a soft landing for the economy.

BY JIN MIN-JI [[email protected]]

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