Won-dollar rate threatens 1,530 level, intensifying foreign outflows

Middle East risks and high interest rates weigh on large-cap stocks

Stocks that rallied on Jensen Huang visit expectations hit by profit-taking

Kosdaq rebounds on institutional buying amid market-activation hopes

The Kospi and won-dollar exchange rate are displayed on a board at Hana Bank's dealing room in Jung-gu, Seoul, on Thursday afternoon. [Yonhap]
The Kospi and won-dollar exchange rate are displayed on a board at Hana Bank's dealing room in Jung-gu, Seoul, on Thursday afternoon. [Yonhap]

The won-dollar rate threatening the 1,530 level intensified pressure on foreign investors to exit the domestic stock market. Renewed Middle East tensions pushed up global oil prices and U.S. government bond yields simultaneously, sharpening the won's decline and prompting foreign investors to unload nearly 7 trillion won ($4.62 billion) worth of shares on the main bourse in a single session. The Kospi retreated to the 8,630 range under what was the second-largest single-day foreign net selling on record.

The Kospi closed Thursday at 8,639.41, down 162.08 points, or 1.84 percent, from the previous session, according to Korea Exchange. It was the index's first decline in four trading sessions since May 28.

The trigger for the day's selloff was the exchange rate. The won-dollar rate opened above 1,530 in the Seoul foreign exchange market for the first time since the financial crisis, and also topped that level on an intraday basis for the first time in roughly two months.

The won's accelerating weakness amplified pressure on foreign investor flows. Foreign investors posted net selling of 6.9880 trillion won on the main bourse, extending their run of consecutive net selling to 19 trading sessions from May 7 through Thursday. Cumulative net selling over that stretch reached 66.9050 trillion won — the 10th-longest foreign net selling streak on record and the longest in more than six years, surpassing the 30-session run from March 5 to April 16, 2020.

Thursday's foreign net selling figure was the second-largest on record. The all-time high was 7.0812 trillion won, set on Feb. 27. Individual and institutional investors provided some support, posting net purchases of 5.0125 trillion won and 1.8124 trillion won, respectively, but that was not enough to absorb the volume of foreign selling.

The index opened down 177.67 points, or 2.02 percent, at 8,623.82. It briefly recovered the 8,700 level early in the session before a surging exchange rate and heavy foreign spot selling pushed losses wider again. The index fell as low as 8,577.30 intraday before bargain hunters stepped in and trimmed some of the decline.

External conditions added to the pressure on both the won and the domestic market. Wall Street's three major indexes all fell overnight amid stalled negotiations between the United States and Iran, while rising geopolitical tensions pushed up global oil prices and U.S. government bond yields, dampening appetite for risk assets.

Iran's Islamic Revolutionary Guard Corps said it struck U.S. military installations — including an Air Force base in Kuwait and the U.S. Navy's Fifth Fleet base in Bahrain — in retaliation for attacks on an Iranian oil tanker and a communications tower on Qeshm Island. With Middle East risk escalating, West Texas Intermediate crude futures settled at $96.02 a barrel, up 2.4 percent from the previous session. The yield on the 10-year U.S. government bond briefly topped the psychologically significant 4.5 percent threshold during trading.

Stronger-than-expected U.S. employment data also added to interest rate concerns. Private-sector payrolls rose by 122,000 in May from the previous month, according to ADP — the largest monthly increase since January last year.

The domestic market faced additional headwinds beyond the surging won-dollar rate, including an after-hours plunge in Broadcom and a new U.S. tariff announcement. After the regular session closed, Broadcom tumbled 13 percent in after-hours trading after its AI semiconductor sales outlook fell short of market expectations.

The U.S. Trade Representative announced on June 2, local time, a plan to impose an additional 12.5 percent tariff on South Korea, targeting countries that have failed to ban or enforce prohibitions on imports made with forced labor. South Korea was included alongside Australia, China, Brazil and Japan. The added tariff burden further dampened investor sentiment toward export-oriented and large-cap stocks.

Top market-capitalization stocks were not spared from foreign selling and exchange rate pressure. Samsung Electronics, which had crossed the 370,000 won mark for the first time in the previous session, fell 2.50 percent to close back in the 350,000 won range. SK Hynix dropped 2.63 percent, retreating to the 2.2 million won range. While a weaker won can in principle boost earnings for exporters, Thursday's sharp currency move did more to trigger foreign capital outflows and risk aversion than to benefit export stocks.

Stocks that had rallied ahead of Nvidia CEO Jensen Huang's visit to South Korea this week also gave back gains on profit-taking — LG Electronics fell 16.43 percent, Hyundai Motor dropped 3.98 percent, NAVER lost 4.63 percent and Doosan declined 6.15 percent.

The Kosdaq, by contrast, rebounded for the first time in six trading sessions, lifted by institutional buying and expectations for government market-activation measures. The Kosdaq closed up 23.70 points, or 2.31 percent, at 1,049.73.

The index opened up 6.88 points, or 0.67 percent, at 1,032.91 and extended its gains through the session, touching an intraday high of 1,065.90. Sentiment was boosted by media reports during the session that the Financial Services Commission planned to meet with Kosdaq market officials to discuss current conditions and ways to revitalize the market.

Institutional investors posted net purchases of 206.7 billion won on the Kosdaq. Individual and foreign investors were net sellers of 163.4 billion won and 30.2 billion won, respectively.


kacew@heraldcorp.com