As the Kospi continued to fall sharply, the Bank of Korea said in a report to the National Assembly that the stock market "is expected to remain sensitive to external uncertainty factors going forward."
The central bank said "solid fundamentals will limit downward pressure," but dropped language from its previous report describing the risk of a "sustained downward trend in domestic share prices" as limited.
In a report submitted Wednesday to the National Assembly's Finance and Economy Planning Committee, the BOK described recent stock market conditions, saying the Kospi "had been rising steeply on the back of capital market reform measures and expectations of improved earnings at chipmakers, but has recently undergone a sharp correction amid concerns over slowing AI investment and large-scale net selling by foreign investors."
The BOK added that "share price volatility has been expanding each time major issues come to the fore — such as investment or funding concerns at US big-tech companies and rising interest rates in major economies — in a situation where domestic investment demand is concentrated in a small number of AI-related sectors." The V-Kospi volatility index averaged 85.3 per day this month, surpassing the level recorded during the global financial crisis (70.3).
On the share price outlook, the BOK said it "expects the market to remain sensitive to external uncertainty factors, including the AI industry outlook, monetary policy shifts in major economies, and global capital flows," adding that "while foreign investors continue net selling as part of portfolio rebalancing, solid fundamentals — including expectations of large-scale operating profit at chipmakers — should limit downward pressure on domestic share prices." A line from the report submitted July 9 stating that "the possibility of a sustained downward trend in domestic share prices is limited" did not appear in the latest document.
The BOK also signaled it would maintain a tightening monetary policy stance. It said "growth is gaining momentum on the back of a strong semiconductor cycle, while inflation is projected to remain above target for a considerable period and risks to financial stability persist," and therefore "judges it necessary to continue the rate-hike stance." The bank added that "the timing and pace of any additional hikes will be determined after monitoring the degree of inflationary pressure, the trajectory of economic improvement, and financial stability conditions."
On the semiconductor cycle outlook, the BOK said that "taking into account rising computing demand driven by AI adoption, continued investment by major big-tech firms to secure a competitive edge, and supply constraints stemming from high process complexity, the global semiconductor cycle is expected to remain in an expansionary phase for a considerable period, driven by the expansion of AI applications and related infrastructure investment." It cautioned, however, that "financial market corrections triggered by concerns over AI profitability, a pullback in big-tech capital expenditure, and energy bottlenecks remain as downside risks."
On inflation, the BOK forecast that "improvements in consumption and investment, along with the pass-through effects of cost shocks, will act as upside pressure," and that "from the second half onward, amid high uncertainty over international oil price movements, price increases in manufactured goods and personal services will broaden, keeping inflation above target."
kimstar@heraldcorp.com
