KOSPI Outlook Hinges on Stable Interest Rates Amid Pre-Chuseok Volatility

The KOSPI index is expected to digest interest-rate trends and shifts in supply and demand ahead of the Chuseok holiday. Despite a hawkish monetary policy, long-term interest rates have been stable, and earnings linked to semiconductors and artificial intelligence (AI) are expected to support the downside of the index.

Last week, the KOSPI fell 2.8 percent, while the Kosdaq rose 0.2 percent. The key variable weighing on stocks was interest rates. At the September FOMC, the U.S. Federal Reserve raised its benchmark rate by 0.25 percentage point to 3.75 to 4.00 percent.

However, the stock market reaction differed from the past. Despite the rate hike and a hawkish dot plot, long-term Treasury yields fell instead. This is seen as reflecting that markets had priced in much of the possibility of additional rate hikes and that the policy path ahead has become clearer than before.