Seoul Stocks Extend Losses Amid Fading Rate Cut Hopes and Weak Won

Seoul stocks extended losses on Friday, with the benchmark KOSPI index falling 1.4% in early trading. The decline was driven by fading hopes for US interest rate cuts this year and a weakening Korean won. Major tech and financial firms led the losses, with shares of Samsung Electronics, SK Hynix, LG Energy Solution, and KB Financial all posting declines.

The losses come amid comments from New York Federal Reserve President John Williams, who said he sees no urgency to cut rates. This has dimmed expectations for imminent rate cuts by the US Federal Reserve, leading to a rise in US Treasury yields as investors bet on fewer rate cuts in 2024. The shifting central bank outlook has also weighed on US equities, with the S&P 500 and Nasdaq falling overnight.

The Korean won also weakened against the US dollar, trading at 1,383.5 won, down 10.6 won from the previous session. The won has experienced a sharp drop in recent days, weakening to 1,400 won per US dollar during intraday trading on Tuesday. This was triggered by foreign investors selling more assets, the escalating Middle East conflict, and the expectation that the US Federal Reserve will maintain its restrictive monetary policy for longer than expected.

Why this matters: The decline in Seoul stocks and the weakening of the Korean won reflect broader concerns about the global economy and the direction of monetary policy. The developments in South Korea are being closely watched by investors and policymakers around the world, as they could have implications for other emerging markets and the global financial system.

Trilateral Currency Talks: In response to the won's depreciation, the finance chiefs of South Korea, the US, and Japan held trilateral talks and issued a joint statement expressing concerns about the sharp depreciation of the Korean won and Japanese yen. South Korea's central bank governor Rhee Chang-yong also commented on the excessive depreciation of the won and said the central bank has resources and tools to stabilize the foreign exchange market. However, experts warn of an overall weakening of the local currency in the coming months, urging the government and financial authorities to take more aggressive measures to handle risk factors and closely monitor the foreign exchange market.

Key Takeaways

• Seoul stocks fell 1.4% due to fading US rate cut hopes, weak Korean won.
• US Treasury yields rose as investors expect fewer 2024 rate cuts.
• Korean won weakened to 1,383.5 won/USD due to foreign investor selloff.
• Finance chiefs of Korea, US, Japan expressed concerns over won, yen depreciation.
• Experts warn of further won weakening, urge aggressive measures to stabilize forex.