The KOSPI Composite Index continued its sell-off after the relatively hawkish pause by the Bank of Korea. The index, which tracks the biggest South Korea, plunged by almost 2% on Thursday. It reached a low of KRW 2,415, a few points above last month’s low of KRW 2,400. It has dropped by almost 10% from the highest point this year.

The KOSPI index joined its global peers in a deep sell-off as market risks jumped. In the United States, the fear and greed index has dropped to the fear zone of 26 as bond yields have continued soaring. The 30-year Treasury yield jumped to 5% on Wednesday, the highest level since 2007.

American indices like the Dow Jones, S&P 500, and Nasdaq 100 crashed by more than 1% on Wednesday as these risks jumped. Similarly, in Asia, the China A50 index fell by over 2.45% while the BIST 100 crashed by over 3.36%. It seems like investors are getting nervous about the state of the world economy.

Wars in Ukraine and Israel are going on while Iran has requested OPEC to place an oil embargo to Israel. As a result, the price of crude oil has surged, with Brent trading at $92 and WTI moving to $88. South Korea suffers when energy prices surge since it is a net importer.

The KOSPI index also plunged after the latest interest rate decision by the Bank of Korea. As was widely expected, the bank decided to leave interest rates unchanged at 3.50%, where they have been in the past few months.

The bank noted that it could resume the rate hikes again if inflation remains stubbornly high. However, most analysts expect it to leave rates unchanged until 2024 when it will deliver several cuts.

The South Korean economy is going through a long period of slowdown as exports of key products like semiconductors struggle. The most recent data showed that the economy expanded by 0.6% in Q2 while inflation has eased to 2.3% from last year’s high of 6.3%.

The daily chart shows that the KOSPI Composite index has been under intense pressure in the past few months. It peaked at KRW 2,673 in August and has plunged by almost 10%. This means that the index is now approaching a correction market. 

Most recently, the shares crashed below the support at KRW 2,480, the lowest swing in August. It has also moved below the 50-day and 25-day exponential moving averages (EMA) while the Relative Strength Index (RSI) has drifted downwards.

Therefore, the outlook for the KOSPI index is bearish, which could see it move into a correction. A correction happens when an asset drops by at least 10% from its peak.

The post KOSPI Composite index nears correction as global risks rise appeared first on Invezz.