October 25, 2024

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An electronic board shows the Kospi closing at 2,522.15, gaining 80.6 points or 3.3 percent at a dealing room of the Hana Bank headquarters in central Seoul on Tuesday. (Yonhap)

The South Korean stock market partially rebounded Tuesday from the previous day's massive rout, as bargain-hunting investors sought to profit.

The benchmark Kospi stood at 2,531.91, up 90.36 points, or 3.7 percent, as of 2:30 p.m. It opened at 2,533.34, showing limited recovery, but fluctuated throughout the trading hours as of press time. The secondary bourse Kosdaq climbed to 733.48, gaining 42.2 points, or 6.1 percent.

Shortly after trading began Tuesday, the Korea Exchange, the nation's sole bourse operator, activated a sidecar trading curb on the buying side of the Kospi and Kosdaq in an attempt to stabilize the volatile market.

A sidecar suspends futures trading for five minutes to prevent panic. It is triggered when Kospi 200 futures fluctuate by more than 5 percent and maintain that gain or loss for over one minute.

It was the first time in over four years that the operator activated a sidecar on the buying side of the Kospi, since June 2020. For Kosdaq, the latest sidecar for buying was issued in November.

The measures are the opposite of how trading curbs of a sidecar and circuit breaker were activated on the selling side of the two indices the previous day due to a record-breaking crash.

It was also the first time in over four years for the bourse operator to activate back-to-back sidecar measures, since March 2020.

On Monday, the local stock market plummeted, reflecting the woes of a potential recession of the US economy. A record 190 trillion won ($139 billion) was wiped off the Kospi market as it lost nearly 9 percent. It was the first time the benchmark index experienced an over 200-point fall in a day, marking the largest drop ever.

Experts viewed Tuesday’s recovery on the stock market to be a “technical rally,” meaning the rise could be a short-term effect in the face of a general declining trend.

"It is true that the Kospi’s plunge was excessive. Though the recovery may not lead to a general upward trend, a momentary rebound is expected," Hi Investment & Securities analyst Lee Woong-chan said.

"As the drop on the previous day was excessive, a technical rally was possible," market strategist Han Ji-young from Kiwoom Securities said. "But the local stock market needs a trigger for a turnover."

The Japanese and Taiwanese stock markets, which likewise experienced major downturns on Monday, slightly recovered as well, along with Seoul shares.

The local financial authorities viewed the US slowdown, yen-carry trade and renewed geopolitical woes in the Middle East to be potential factors of danger associated with the US economy, adding the Asian stock markets responded "excessively" to the risks, as they started earlier than the US market following the weekend.

The yen-carry trade refers to investors deploying money borrowed at near-zero interest rates in Japan into higher-yielding assets, such as stocks and bonds. However, the yen has strengthened since the Bank of Japan recently raised interest rates, leading to investors unwinding their positions and going on a massive selling spree.

"While previous plunges were accompanied by actual impacts on the real, share, forex and bond markets, (Monday’s) dip was unique as it was limited to the stock market," Finance Minister Choi Sang-mok said in a meeting held with top financial figures here.

The attendees viewed the stock market plunge on the previous day to be "excessive."

With escalating uncertainties including heightened geopolitical tension in the Middle East and the US presidential election, related authorities are to maintain a 24-hour monitoring posture, the attendees agreed.

“Market players must make calm and rational decisions, being cautious against the spread of excessive anxiety,” the statement read.

By Im Eun-byel (silverstar@heraldcorp.com)