Rate and China worries translate into major Kospi retreat

The Kospi closed below 2,900 points for a second straight day Tuesday on concerns about a rate increase by the U.S. Federal Reserve and slower growth in China, where private consumption is weak.

An sign board at Hana Bank in central Seoul shows the Kospi that closed at 2,864.24 points on Tuesday, down 0.89 percent from Monday. [YONHAP]

The Kospi closed below 2,900 points for a second straight day Tuesday on concerns about a rate increase by the U.S. Federal Reserve and slower growth in China, where private consumption is weak.

It ended Tuesday at 2,864.24, down 0.89 percent, following Monday's 1.09 percent decline to 2,890.1.

The benchmark index had been trading above 3,000 for around 50 days. It is down more than 10 percent from its peak, which was hit last summer.

Institutional investors net sold 226.9 billion won ($190 million) of shares on Tuesday, while foreign investors net purchased 5.2 billion won and retail investors net bought 207.8 billion won.

The Federal Reserve's much expected rate increases are seen to be scaring away investors from equities. Chairman Jerome Powell said last week that the economy is both healthy enough and in need of tighter monetary policy.

"If things develop as expected, we'll be normalizing policy, meaning we're going to end our asset purchases in March, meaning we'll be raising rates over the course of the year," he told the Senate Banking Committee on Tuesday.

JPMorgan CEO Jamie Dimon said during the bank's earnings call on Friday on the subject of rate increases: "My view is a pretty good chance there'll be more than four. It could be six or seven."

The Bank of Korea raised the benchmark rate by 0.25 percentage points to 1.25 percent last week, bringing interest rates back to pre-pandemic levels.

Sluggish growth in China is another factor that is seen to be pulling down the index, as China is the biggest importer of Korean products. The country's gross domestic product (GDP) grew 8.1 percent last year, slightly faster than the 8 percent market consensus.

But the growth has slowed over the year.

China reported 18.3 percent growth in the first quarter, followed by 7.9 percent in the second quarter, 4.9 percent in the third quarter and 4 percent in the fourth quarter.

Its economy has been hurt by high unemployment and sluggish retail sales growth.

China's unemployment rate last month was 5.1 percent, higher than the 5 percent estimate, and retail sales growth was 3.9 percent.

"The unemployment rate in China is measured very conservatively, so the actual unemployment rate will be far worse," said Kim Kyung-hwan, a researcher at Hana Financial Investment. Kim added that private consumption in China "is shockingly bad."

Subscriptions for LG Energy Solution's initial public offering (IPO) by retail investors may have also affected the index as they raised cash to invest in the offering by selling shares they own.

More than 20 trillion won was collected in deposits in the first four hours on Tuesday. The subscription lasts through Tuesday.

LG Energy Solution is scheduled to go public on Jan. 27.

BY JIN MIN-JI [jin.minji@joongang.co.kr]