"The Path to KOSPI 6000 Depends on the US Federal Reserve"

On the 2nd, the dealing room display board at Hana Bank in Jung-gu, Seoul shows the KOSPI and KOSDAQ closing prices after the KOSPI fell below the 5,000 mark amid weakness in the U.S. stock market. Yonhap News

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After former Federal Reserve Governor Kevin Warsh, known for his hawkish (tightening-biased) stance, was nominated as the next Fed chair, the Korean stock market plunged on the 2nd and then attempted a rebound on the 3rd. Experts noted that, since the Korean market had recently risen more than any other market in the world, a period of share-price correction could appear for some time.

However, many analysts also predicted that, as business conditions in major industries, including semiconductors, remain strong, the market could resume its uptrend after a breather. In particular, if former Governor Warsh and other Fed officials send positive signals on cutting the benchmark interest rate, they expect a trend reversal to continue and the KOSPI to make another attempt at the 6,000-point level.

On the 3rd, the KOSPI opened at 5,114.81, up 165.14 points (3.34%) from the previous session. The KOSDAQ also started at 1,135.94, up 37.58 points (3.42%) from the previous day.

The rise is seen as having been influenced by gains in the U.S. stock market the previous day. On the 2nd (local time), the Dow Jones Industrial Average climbed 1.05% from the prior session and the Nasdaq rose 0.56%. The Institute for Supply Management (ISM) reported that the Manufacturing Purchasing Managers’ Index (PMI) for January jumped to 52.6 from 47.9 in the previous month, and this sharp increase drove strength in technology stocks such as semiconductors.

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Although the Korean market has managed to rebound, the securities industry believes it may face a correction phase in which gains and losses alternate for the time being. On the previous day, the KOSPI closed at 4,949.67, down 274.69 points (5.26%) from the session before, falling below the 5,000-point level. Due to the sharp drop, a sell-sidecar on the Korea Exchange stock market (a temporary suspension of the effectiveness of program-trading sell orders) was triggered at 12:31 p.m. that day for the first time this year. It was the first time in about three months that a KOSPI sell-sidecar had been activated, since November 5 last year, when concerns over U.S. monetary tightening had also caused the index to plunge.

The news that former Fed Governor Warsh, who is considered hawkish, had been tapped by U.S. President Donald Trump as the next Fed chair acted as a source of anxiety for the market. During his tenure at the Fed in 2010, Warsh expressed a critical view that quantitative easing could cause inflation. His hawkish track record has emerged as a negative factor for markets.

On top of that, prices of silver and gold, which had soared since last year on speculative trading, plunged by more than 30% in a single day, and the shock spilled over into the stock market. On January 30, at COMEX, the metals futures exchange under the Chicago Mercantile Exchange (CME) Group, April gold futures and March silver futures tumbled 11.4% and 31.4%, respectively.

S2W CEO Suh Sangduk, a researcher at Mirae Asset Securities, explained, "The starting point of the plunge in Asian markets appears not to be the economy or corporate fundamentals, but rather a lack of collateral and the collapse of leveraged structures triggered by the sharp drop in gold and silver." He added, "Investors who had piled into silver futures on the back of speculative trading and then faced forced liquidation due to higher margin requirements are now dumping assets that can be easily converted into cash, such as stocks, index futures, and cryptocurrencies, thereby sending shockwaves through the market."

Analysts pointed out that the KOSPI’s steeper decline compared with other markets the previous day reflected the burden from a rapid short-term rally, after the index surged more than 75% last year and then climbed about 24% in January alone this year. Han Jiyoung, a researcher at Kiwoom Securities, said, "The rapid rise in the index created concerns about the pace of gains and a desire to lock in profits, and these factors combined with negative news from the Fed and the commodities market to intensify selling pressure."

On the 3rd, at the Hana Bank head office dealing room in Jung-gu, Seoul, an employee monitors the stock market and exchange rates as the KOSPI, which started 3% higher a day after its crash, reclaimed the 5000 level. The KOSPI index opened at 5,114.81, up 165.14 points (3.34%) from the previous session. 2026.2.3 Photo by Cho Yongjun

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Experts believe the Korean stock market may undergo a correction for a while. As the market’s gain last month was the highest since the 2000s began, many expect that, triggered by this episode, the market could show a somewhat more subdued pattern in February.

Lee Jinwoo, head of research at Meritz Securities, said, "The ambiguity surrounding the policy stance of the new Fed chair is the reason for this correction," adding, "Internally, there was already a sense of fatigue toward the sharply rising domestic market, and uncertainty has amplified volatility." He went on, "Even if this is not a trend reversal to a prolonged downturn, market volatility could remain elevated for the time being."

Cho Suhong, head of research at NH Investment & Securities, said, "Gold and silver prices had risen tremendously, and our market had also climbed sharply in recent weeks, so accumulated fatigue seems to have provided the pretext for a correction," but added, "Even so, we do not expect the semiconductor and artificial intelligence (AI) cycles to end in the short term, and with policy positives such as the third amendment to the Commercial Act on the horizon, we remain positive on the market."

Some analysts also say that, for the Korean market to resume a sustained uptrend, the importance of developments in the U.S. market will grow, such as former Governor Warsh making dovish remarks or Fed governors signaling a willingness to cut the benchmark interest rate further. Lee Kyungmin, a researcher at Daishin Securities, said, "For the time being, we need to factor in expanded volatility in high-flying assets and financial markets due to liquidity concerns," but predicted, "While the market cools off from short-term overheating and relieves its rally fatigue, the Fed’s independence will be reinforced, and former Governor Warsh’s stance, which is more accommodative than in the past, will become visible to the market, gradually easing volatility."

Lee Jaeman, a researcher at Hana Securities, said, "With the KOSPI having delivered record-high returns in January, the timing was such that investors’ desire to take profits could strengthen, and the change in Fed chair can be seen as having provided the pretext for a correction." He added, "Bull markets typically end when the Fed actually raises its policy rate, when credit risk spreads, or when leading sectors move past the peak of their earnings and profitability cycles, and we do not yet see such signs."

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Meanwhile, as domestic financial and foreign exchange markets showed significant volatility, the Korean government stated, "Given global uncertainties such as U.S. tariff policy and geopolitical conflicts, we will continue to operate a 24-hour monitoring system to closely track market developments at home and abroad." On this day, the Ministry of Economy and Finance held a market situation review meeting chaired by First Vice Minister Lee Hyungil to assess the impact of the Fed chair nomination on domestic financial markets.

The meeting was attended by the Deputy Governor of the Bank of Korea, the Vice Chairman of the Financial Services Commission, and the First Senior Deputy Governor of the Financial Supervisory Service. Participants assessed that "the KOSPI’s decline yesterday was a correction driven by the drop in U.S. stocks following the Fed chair nomination, as well as short-term profit-taking after the steep rise in share prices." They also noted that volatility in the won-dollar exchange rate has been increasing in line with recent trends in global financial markets.

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