The KOSPI Composite Index has embarked on a strong rally in the past few months as South Korean shares surged. The index, which tracks the biggest South Korean companies, rose to KRW 2,720, its highest point since August 26, and 18% above the lowest point this year.
Interest rate cuts have driven South Korean stocks
South Korean stocks have jumped this year even as some of the biggest companies are exposed to the United States, where Donald Trump has applied substantial tariffs. Some of the most exposed companies are giants like Hyundai, Samsung, and LG.
One reason for the rally is that investors believe that the two countries will reach an agreement later this year. South Korea was one of the first countries to reach out to the Trump administration for a deal.
South Korean stocks have also soared as the political environment has cooled a bit in the past few months. Political temperatures rose a few months ago after the then-president declared a state of emergency.
Further, the South Korean central bank has been more dovish in the past few months. It slashed interest rates last week by 0.25% to 2.75%, down from last year’s high of 3.50%. It has been slashed five times since last year.
Interest rate cuts boost the stock market by lowering the country’s bond yields. Data shows that the ten-year yield has been in a downward trend in the past few months. It was trading at 2.80%, down from the year-to-date high of 3.08%. The 30-year yield has also dropped to 2.67% from the year-to-date high of 2.85%.
It has slashed interest rates because analysts anticipate that the South Korean economy will continue slowing. The risk, however, is that inflation has remained stubbornly high in the past few months. Recent data shows that the headline CPI remained at 2.1% in April, up from 1.3% earlier this year.
Read more: Trump’s tariff hikes cause steel stocks to fall across Asia
Most KOSPI companies hitting 52-week highs
The KOSPI Index remains significantly below the highest point in 2024 even as more companies are hitting their 52-week highs. Data shows that more companies in the index are hitting the highs today more than at any point in the past few years.
Over 90 firms have moved to this high, and many more could join the group in the coming weeks. This rally underscores that investors believe that smaller companies will do better in the future. Samsung, the biggest South Korean company, now accounts for 16% of the index, down from 20% earlier this year.
The best-performing companies in the KOSPI Index are the likes of Hyundai Rotem, MNC Solution, Hanwha, HD Hyundai Energy Solutions, and Hyundai Engineering, have all surged by over 100% this year.
KOSPI Composite Index analysis
The daily chart shows that the KOSPI Composite Index bottomed at KRW 2,285 in April and then rebounded to KRW 2,720 in May. It has already crossed the important resistance point at KRW 2,680, its highest point on February 1.
Moving above that level meant that investors had prevailed. The index has also formed a golden cross pattern, which happens when the 50-day and 200-day moving averages cross each other.
It has jumped above the 61.8% Fibonacci Retracement level, a sign that bulls are in control. Therefore, the index will likely continue rising as bulls target the key resistance level at $2,800, up by 3.8% above the current level. A move below the 50% retracement level will invalidate the bullish outlook.
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