US 10-year yield tops 4.8%, WTI crosses $90; Samsung Electronics, SK hynix buybacks cushion downside

Futures-options expiry Monday, US CPI Tuesday; NH Investment sees Kospi at 6,200–7,300

The Kospi and won-dollar exchange rate are displayed on a screen at the Hana Bank dealing room in Jung-gu, Seoul, on Friday. [Yonhap]
The Kospi and won-dollar exchange rate are displayed on a screen at the Hana Bank dealing room in Jung-gu, Seoul, on Friday. [Yonhap]

The Kospi, weighed down by rising US long-term interest rates and higher crude oil prices, will attempt a rebound next week. With the US 10-year Treasury yield having climbed above 4.8%, market attention is turning to the US consumer price index for August, due Tuesday. Foreign investor flows ahead of Monday's simultaneous futures-and-options expiry are also seen as a key variable.

The Kospi closed Friday at 6,687.21, up 107.73 points, or 1.64 percent, from the previous session, according to Korea Exchange. For the week running from Monday through Friday, the Kospi fell 1.50 percent and Kosdaq dropped 2.97 percent.

This week, the Kospi was held back by rising US long-term yields and a deteriorating situation in the Middle East. As tensions between the United States and Iran escalated, West Texas Intermediate crude surpassed $90 per barrel and the US 10-year Treasury yield climbed into the 4.8 percent range. August semiconductor exports hit a record $46.65 billion, up 209 percent from a year earlier, but higher interest rates and rising oil prices weighed on the market.

"What matters more than the fact that the US 10-year yield has reached 4.8 percent is whether it will continue rising toward 5 percent," said Lee Jae-won, a researcher at Yuanta Securities Korea. "A slowdown in employment and inflation data, along with the US Treasury's efforts to stabilize long-term bond supply and demand, could push yields lower — but a prolonged Middle East conflict and higher oil prices are factors that could drive them back up."

Meanwhile, share buybacks by Samsung Electronics and SK hynix are seen as having prevented further index declines. According to Shinhan Investment, foreign investors, retail investors and institutions all posted net selling of Kospi-listed shares in three of the four trading sessions this week, but other corporate entities — including those conducting buybacks — continued buying. The buyback programs at Samsung Electronics and SK hynix effectively absorbed the bulk of the selling pressure.

"A market dynamic in which other corporate entities, including buyback programs, are supporting the index floor has continued," said Kang Jin-hyeok, a researcher at Shinhan Investment. "Still, we should remain alert to the possibility that foreign selling could exceed the buying capacity of those corporate entities if the Middle East situation or economic data deliver a shock."

Next week, attention will center on US inflation data. The August producer price index is due Monday, followed by the CPI on Tuesday. The Federal Reserve Bank of Cleveland has estimated that August CPI rose 3.38 percent from a year earlier. Given the recent rebound in oil prices, a reading above market expectations could reignite fears of further rate hikes and push long-term yields sharply higher. Conversely, if inflationary pressure proves modest, concerns about rising rates could ease alongside the recent softening in employment data.

"Both the ADP private employment report and the Job Openings and Labor Turnover Survey job openings figure recently came in below market expectations," said Na Jeong-hwan, a researcher at NH Investment & Securities. "With real-economy indicators likely to support a rate hold, it is premature to build an investment strategy around the assumption of a September FOMC rate hike before the August CPI is even released."

Monday's simultaneous futures-and-options expiry is another variable to watch. Combined trading volume across the Kospi, Kosdaq and Nextrade topped 150 trillion won ($110 billion) on June 1 but shrank to 35 trillion won on Wednesday. With trading activity subdued, index volatility is expected to rise around the expiry date depending on how foreign investors position themselves in futures and spot markets.

"The futures positions built up in the market ahead of expiry are smaller than they were in March and June," Na said. "When positions in the market are thin, the same amount of capital moving can leave more room for share price volatility."

NH Investment & Securities set its Kospi forecast range for next week at 6,200 to 7,300 points. It cited economic data supporting a rate hold and a pullback in oil prices as upside factors, and a further escalation of US-Iran military conflict and a CPI reading above expectations as downside risks.

"Corporate earnings outlooks are improving gradually, but advanced-economy interest rates — led by US Treasuries — remain elevated," said Jo Byeong-hyeon, a researcher at Daol Investment & Securities. "I expect the index to continue trading in the 6,200-to-7,000 range that has formed since August." He added that with no clear dominant force driving supply and demand, interest in semiconductors is likely to pick up again as the index rebounds from its lows.


hajun825@heraldcorp.com