South Korean stocks suffered extended losses Tuesday, likely the result of Japan’s decision to place export restrictions on key semiconductor materials along with the growing possibility that the US Federal Reserve will leave interest rates unchanged this month.
The benchmark Kospi closed 0.59 percent lower from the previous trading at 2,052.03, despite opening higher. It fell more than 2 percent Monday, the worst decline in two months, amid a strong mood of lowered anticipation of an aggressive rate cut.
The secondary, tech-heavy Kosdaq also ended 1.63 percent lower at 657.8. It fell nearly 4 percent Monday, which marked its lowest close since Jan. 8.
“The Kospi index dropped 2 percent for the first time since May 9. It was first weighed down by the strong US job data (which tempered anticipations of aggressive rate cuts by the Fed), but the general lackluster state of the local market coupled with risks stemming from the trade tension between Korea and Japan has added to the blow,” Han Dae-hoon, an SK Securities analyst, said in a Tuesday note.
Institutional investors net sold stocks worth 112.3 billion won ($95.1 million), while foreigners net purchased nearly 21 billion won worth of shares.
Concerns about the latest Korea-Japan tensions have heightened since last week, especially after a series of reports revealing a substantial amount of Japanese capital within the Korean market.
“The local stock market holds about 13 trillion won worth of Japanese capital at the moment and the amount is not expected to carry much weight nor hold major clout over the market,” Jung Ji-won, CEO of the Korea Exchange, said at a press conference held around noon.
“However, the KRX plans to continue monitoring the situation, as there is a possibility that the retaliatory issue could expand and become a long-term problem, resulting in market volatility,” he added.
According to data released by the Korea CXO Institute on Tuesday, about 34 local companies have Japanese shareholders with stakes of at least 5 percent. Among them, 16 were Kospi-listed firms and 18 were listed on the Kosdaq.
The stocks held by Japanese investors were worth an estimated 1.8 trillion won as of July 3, according to the data. A noteworthy shareholder was Japanese telecommunications operator NTT Docomo, which currently owns a 5.46 percent stake in KT, a Korean mobile phone carrier.
Most of the firms are electronics and auto parts suppliers, which are linked to Korea’s two main industries, further fueling worries that a pullout by Japanese investors could rattle the pillars of the Korean economy.
But analysts noted that investor sentiment may be “excessively dampened” for the moment and there was still hope of recovery.
“The Korean and Asian stock market’s sudden fall observed on Monday were due to concerns of a stall in US-China trade talks, lowered expectations surrounding a Fed rate cut and Japan’s export curbs on Korea,” Samsung Securities researcher Yoo Seung-min said.
“It seems the market participants are focused on risk management, highlighted by some worst-case scenarios -- the increased volatility in the Asian market this week seems temporary,” he added.
By Jung Min-kyung (firstname.lastname@example.org)