Bank of Korea: Kospi Downturn Limited, Semiconductor Boom Supports Market

The Bank of Korea (BOK) has assessed that the recent adjustments in the domestic stock market have a limited possibility of turning into a sustained downward trend, citing the ongoing semiconductor boom as a key supporting factor. The BOK noted that the Kospi index has recorded a remarkable 91.9% increase year-to-date, significantly outperforming Taiwan (61.5%), Japan (38.5%), and the United States (9.6%). The index even surpassed the 9000-point mark, reaching an intraday high of 9114.6 on June 22.

However, the central bank acknowledged a notable increase in volatility, with the V-Kospi index, a measure of stock market fluctuations, soaring to 96.9 on May 29, exceeding the peak of 89.3 recorded during the 2008 global financial crisis. This heightened volatility is attributed to factors such as foreign investors taking profits and portfolio rebalancing at the end of the half-year. The BOK anticipates that future stock prices will likely remain volatile, influenced by concerns surrounding the artificial intelligence (AI) industry, global monetary policy shifts, and international capital flows.

Looking ahead, the BOK projects that inflation will continue to exceed its target level in the second half of the year. While oil prices are expected to decline, price increases in other manufactured goods and personal services are likely to accelerate, pushing inflation higher. Consequently, the central bank reiterated its stance on the need to consider raising the base interest rate at an appropriate time, citing robust economic growth driven by the semiconductor sector, persistent inflation, and the need to manage financial stability risks, including rising housing prices and household debt.

The BOK also highlighted the positive outlook for the global semiconductor market, driven by the expanding applications of AI and continued investment by major tech companies. However, it cautioned about potential downside risks, including financial market adjustments due to AI profitability concerns, reduced investment by big tech firms, and energy supply bottlenecks. The report also touched upon the rapid appreciation of the dollar against the Korean won, influenced by Middle East tensions and expectations of U.S. interest rate hikes, leading to significant foreign outflows from the stock market.