[Good Morning Stock Market] Early Week Sharp Fluctuations Signal Phase Change... "Stock-Specific Responses Needed"

On the 16th, supported by additional easing measures from the U.S. Federal Reserve, the KOSPI surged over 5%, recovering the 2100 level. The electronic board in the dealing room of KB Kookmin Bank Yeouido branch in Yeongdeungpo-gu, Seoul, showed the KOSPI index at 2138.05, up 107.23 points (5.28%) from the previous trading day. On the same day, the KOSDAQ index rose 42.23 points (6.09%) to 735.38, and the won-dollar exchange rate closed at 1207.2 won per dollar, down 8.8 won from the previous day. Photo by Kim Hyun-min kimhyun81@

[Asia Economy Reporter Kum Boryeong] An analysis suggests that the sharp fluctuations of over 100 points in the KOSPI index earlier this week could have been a signal of a market phase transition. Until April, expectations of economic activity resumption had driven stock prices up, but this may become difficult going forward. In this process, the securities industry strongly emphasizes the need for stock-specific responses.

◆ Park Seung-young, Researcher at Hanwha Investment & Securities: The sharp decline and rise in the stock market earlier this week should be interpreted as a sign that the market phase is changing. The global stock market rebound since April was driven by expectations of economic activity resumption in major countries such as the United States. The U.S. began discussions on April 15 and resumed economic activities weekly from May, and Europe is also reopening its borders.

The recent volatility in the stock market over the past few days is worth reflecting on. From April to June, expectations of economic activity resumption lifted stock prices, but it suggests that this may no longer be possible. The market will not place much significance on economic indicators and earnings through the second quarter, but figures announced from the third quarter onward will be compared to those from a year ago. The KOSPI’s third-quarter net profit consensus is estimated at 27.2 trillion won, a 27% increase compared to the same period last year. I believe the KOSPI will follow the trajectory of the third-quarter net profit consensus going forward. Also, it is likely to move sideways without direction until third-quarter earnings become visible.

For companies to normalize operations, they need to reorganize assets. Shedding low-profitability assets will accelerate the return to pre-crisis levels. However, in this process, companies’ capital strategies may become more conservative. Dividends may also temporarily decrease. From now on, the market’s focus will shift to restructuring. Restructuring does not necessarily mean the bankruptcy of insolvent companies. Simply organizing overlapping assets among companies and reviewing investment plans can advance the timing of operational normalization.

Market attention may focus on growth stocks free from restructuring, that is, leading sectors. However, it was confirmed during the sharp fluctuations earlier this week that these alone cannot drive the index up. I believe the index can surpass its yearly high only when the outline of restructuring becomes clear. Betting on the index’s direction is not yet a valid strategy. It seems better to trade growth stocks briefly during corrections.

◆ Lee Ye-shin, Researcher at Shinhan Financial Investment: Since June, the market’s character has been rapidly changing in short cycles. Confirming the continuation of a liquidity-rich environment through speeches by Fed Chair Powell and Federal Reserve officials at the June Federal Open Market Committee (FOMC), from the 12th over four trading days, sectors that led the V-shaped rebound or had confirmed individual corporate positive news recorded relatively good returns in the Korean stock market. On days when the index fell, and on days when it rose, the sector distribution of stocks that outperformed the index return consistently included IT software, healthcare, and consumer staples. During the process of increased index volatility, funds are being concentrated either on large-cap stocks with recent upward momentum or, on the other hand, on specific stock groups such as preferred stocks pushed by liquidity forces.

From an investor’s perspective, attention naturally focuses on sectors that performed well even in the sharp downturn. However, it is worth noting that the momentum factor driving the V-shaped rebound is weakening. At this point, rather than joining the upward momentum, a stock-specific response or cautious approach strategy until the second-quarter earnings season is likely to be effective.