Kospi slips back below 7,000 amid rising rates, oil prices — key issues to watch next week

The Kospi, which had recovered the 7,000-point level this week, fell back to the 6,900 range as interest rates and international oil prices rose. Next week, with the US Federal Open Market Committee (FOMC) meeting on the calendar, market attention is focused on the US 10-year Treasury yield — which has approached 5 percent — and the Federal Reserve's rate decision. The Bank of Japan's rate decision is also seen as a potential driver of market volatility.

According to Korea Exchange, the Kospi closed Friday down 124.01 points, or 1.76 percent, at 6,909.91. Over the week from Monday through Friday (Sept. 7–11), the Kospi gained 3.33 percent while Kosdaq rose 0.88 percent.

The Kospi reclaimed the 7,000-point level on Wednesday after semiconductor shares surged following OpenAI's unveiling of GPT-6 Astra, its next-generation AI model. However, escalating Middle East tensions pushed international oil prices above $100 a barrel and drove the US 10-year Treasury yield close to 5 percent, pulling the index back to the 6,900 range on Friday.

Kang Jin-hyeok, a researcher at Shinhan Investment, said AI-related positive news offset the burden of rising oil prices and interest rates, sparking a rebound led by large-cap semiconductor stocks. He added, however, that investors who had been unable to sell during the recent sharp selloff were taking advantage of the index's recovery to offload shares, capping further gains near the 7,000-point level.

The most important event next week is the September FOMC meeting, scheduled for Wednesday (local time). Market views are split between expectations for a rate hold and a 25-basis-point hike. According to NH Investment, the CME FedWatch tool leans toward a rate increase, while Bloomberg's consensus forecast points to a hold. The dot plot to be released alongside the rate decision, as well as remarks by Federal Reserve Chair Kevin Warsh, are also seen as factors that will shape the direction of the US 30-year Treasury yield.

Lee Sang-jun, a researcher at NH Investment, said that unlike the June FOMC, where the benchmark interest rate was held unanimously, three members dissented in favor of a rate hike in July, and geopolitical risks in the Middle East have yet to ease — meaning rate volatility is likely to persist even after the FOMC meeting.

NH Investment projected a Kospi range of 6,400 to 7,400 points for next week, citing a potential decline in oil prices and the Astra effect as upside factors, and an escalation of the US-Iran war and further rises in market interest rates as downside risks.

Whether the US 10-year Treasury yield breaks through 5 percent is another variable. Although the won-dollar exchange rate has recently fallen to around 1,340 won, foreign investors have been slow to return to the domestic market. According to Yuanta Securities Korea, foreigners net sold 17.2 trillion won ($12.9 billion) worth of Kospi shares from July through Thursday. While won strength has historically tended to draw foreign buying, rising US long-term interest rates and international oil prices are currently blocking foreign capital inflows.

Lee Jae-won, a researcher at Yuanta Securities Korea, said that while foreign net purchases have generally accompanied won-strength periods in the past, there is currently no buying force to replace foreigners following their large-scale net selling. He added that for the index to rise, an interest rate environment conducive to foreign investors' return must materialize.

The BOJ monetary policy meeting, running Thursday through Friday, is another variable. Markets are pricing in a BOJ rate hike. If Japan raises rates, a stronger yen and higher Japanese government bond yields could push up sovereign yields in major economies and heighten concerns about the unwinding of yen carry trades.

Lee Gyeong-min, a researcher at Daishin Securities, noted that the Kospi's 12-month forward earnings per share rose from 1,240 points at the end of August to 1,265 points. He forecast that as semiconductor shares continue to gain on AI expectations, buying interest will spread to sectors where share prices are low relative to earnings — including IT hardware, IT home appliances, retail, insurance, shipbuilding and automobiles.

Daol Investment & Securities forecast that the Kospi will remain range-bound ahead of the FOMC after recovering the 7,000-point level this week before slipping back to the 6,900 range. Jo Byeong-hyeon, a researcher at Daol Investment & Securities, said a large near-term rally in the Kospi would be difficult to expect. He added that if high interest rate pressure pulls the index down to the mid-6,000 range, semiconductor and hardware stocks would be worth watching, and that when the index rebounds, banks and insurers would serve as alternatives given the environment of high interest rates and a strong won.