Korea's stock market opened sharply lower on the 19th after U.S. Government Bonds yields hit a record high for the first time in 19 years. High real interest rates raise corporations' funding expense and, at the same time, lift the discount rate on stocks, weighing on the market.
The KOSPI index was trading at 6,475.4 as of 9:04 a.m., down 394.43 (5.74%) from the previous trading day. The index opened at 6,528.77, plunging 300 points from the previous trading day, and is extending losses.
Foreign investors are net sellers of 222.3 billion won and institutions 24.5 billion won, dragging the index lower. It is the first net selling by foreigners in five trading days. Individuals are net buyers of 242.5 billion won, helping defend against the index's decline.
Samsung Electronics(005930) and SK hynix(000660), among other top market-cap stocks, are generally weak. On this day, Samsung Electronics and SK hynix fell 5% in the premarket (8 a.m.–8:50 a.m.) before the regular session and are plunging 7% intraday.
U.S. Government Bonds yields, which surged to a record high for the first time in 19 years, are eroding investor sentiment. According to the Wall Street Journal (WSJ) and other foreign media on the 18th (local time), the U.S. 30-year Treasury yield rose as high as 5.33% intraday. It is the highest level in 19 years since 2007. When market interest rates rise, they increase corporations' funding expense and raise stock discount rates, typically acting as a headwind for equities.
Behind the rise in yields are changes in the buyers of Government Bonds and long-term issuance by global Big Tech. According to Bloomberg, U.S. Treasurys were previously bought by institutional investors relatively insensitive to price changes, but recently they have shifted to private investors sensitive to revenue. In addition, as Big Tech issues ultra-long 30-year bonds, there is analysis that Government Bonds supply and demand are dispersing.
As a result, New York stocks closed broadly lower the previous night. On the 18th (local time), the Dow Jones Industrial Average finished at 53,343.40, down 0.22% from the previous trading day. The Standard & Poor's (S&P) 500 fell 0.69% to 7,691.76, and the Nasdaq composite dropped 1.33% to 26,289.71.
At the same time, the KOSDAQ index was trading at 809.51, down 24.69 (2.96%) from the previous trading day. While individuals and institutions are net sellers of 4.5 billion won and 6.1 billion won, respectively, foreigners alone are net buyers of 10.5 billion won. Most of the top market-cap stocks, including Jusung Engineering(036930), are on a downtrend.