The Kospi Index wavered on Thursday after the Bank of Korea (BoK) delivered a second interest rates hike as it battles with the relatively elevated inflation in the country. It also wavered as South Korean technology companies reacted to the strong Nvidia earnings report.
Kospi Index wavers as South Korean central bank hikes
A major factor that is driving the Kospi Index is a decision by the Bank of Korea to hike interest rates by 0.25%. The bank brought the benchmark lending rate to 3%, its highest level since January last year.
This decision, which was in line with expectations, came after a recent report showed that the core inflation jumped to the highest level since 2023. A key driving behind this inflation is the ongoing US-Iran war that has pushed gasoline and diesel prices higher.
At the same time, the strong wage growth in the country has contributed to the inflation jump. Companies like Samsung and SK Hynix have all accelerated their hiring this year. They are also giving more bonuses, pushing up wages. In most cases, higher wage growth normally leads to higher prices.
The BoK also hiked rates because it believes thay the economy is doing well, helped by the ongoing chip demand. It greww by 2.6% in July, while the headline Consumer Price Index cooled to 2.8%.
The statement came at a time when South Korea’s government bond yields have pulled back a bit. The 30-year yield dropped to 4.60% from the year-to-date high of 4.78%, Similarly, the ten-year dropped to 4.24% from nearly 4.6% earlier this month.
Samsung Electronics and SK Hynix react to Nvidia earnings
Another driving aspect for the Kospi Index is the fact that Nvidia published strong financial results and hinted that its growth will be higher than expected. Nvidia’s revenue jumped to $96 billion last quarter, with the management expecting the Q3 figure to come in at $106 billion.
Nvidia’s guidance is that the next financial year’s revenue growth will be north of 70%, much higher than expected. These numbers are important for the Kospi Index because its biggest constituents are in the tech industry.
Samsung Electronics stock jumped by 2.50%, while SK Hynix jumped by 3.67%. SK Hynix is a major Nvidia supplier and is set to benefit from its revenue growth. SK Square rose by 2.27%, thanks to its stake in SK Hynix.
Kospi Composite Index technical analysis
Kospi Index chart | Source: TradingView
The daily chart shows that the Kospi Index has crawled back in the past few weeks, moving from the year-to-date low of 5,280 points to the current 6,915 points. It has formed an ascending channel and is now hovering at the 50-day Exponential Moving Average (EMA).
This channel is likely part of the formation of a bearish flag pattern, which is a common continuation sign in technical analysis. Therefore, the most likely scenario is where the index resumes the downtrend, and possibly retests the psychological level of 6,000 points. On the other hand, a surge above the resistance level of 6,933 will point to more gains.
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