[Weekly Market Outlook] "A Market Rising Without Convincing Reasons"... KOSPI Weighs on Further Gains

Stock Market Waiting Funds Surpass 50 Trillion
High Possibility of Overshooting Recurrence

Second Week of August, Rising Expectations for KOSPI to Break Previous Highs
Forecast Band Presented up to 2390 Level

[Asia Economy Reporter Oh Ju-yeon] "The market will continue to rise without any justifiable reason."

Daishin Securities described the current stock market situation as a "rising market that is hard to believe" and made this diagnosis.

As the domestic stock market surpassed the 2300 mark and broke through the 2250 box range where it had been trapped throughout last year, domestic stock investors are focusing on the possibility of the rally continuing. The KOSPI exceeding 2300 is the first time in 1 year and 10 months since October 2, 2018, which is interpreted as overcoming the variables that had limited the market rise or reflecting even more positive factors. The securities industry attributes this breakthrough of the 2300 level with such significance and expresses optimism that the KOSPI could set new highs again next week. The primary core factor is liquidity.

On the 6th, the KOSPI index set a new intraday high for three consecutive trading days. The photo shows the Hana Bank dealing room in Euljiro, Seoul on that day. Photo by Moon Honam munonam@

According to the Korea Financial Investment Association on the 9th, investor deposits, which are standby funds for the stock market, increased from 47.4484 trillion won on the 29th of last month to 50.3546 trillion won on the 3rd. This is the second time it has exceeded 50 trillion won, following the breakthrough of 50.5 trillion won on June 26.

The number of investors borrowing money to invest in stocks is also on the rise. As of the 4th, the balance of margin loans (money borrowed from securities firms by investors to buy stocks) in the KOSPI market is 6.8419 trillion won, the highest ever since statistics began in 1998. It increased by 144.3 billion won over the last five trading days.

Analysts say that the stock market's upward trend, based on this abundant liquidity, will continue.

Hana Financial Investment projected the KOSPI expected band for the second week of August (10th-14th) to be 2310-2390. They explained that attempts to break new highs will continue following the previous week.

Researcher Lee Jae-sun said, "The RSI indicator and the price deviation, which measure short-term price momentum, have been continuously rising since the end of July, so there is some price burden," but added, "However, the increase in the proportion of call options in the futures market and the fact that the volatility index VKOSPI has dropped to historical average levels despite the price rise suggest that the market is not overheated."

Lee also noted, "The inverse correlation between Asian stock markets and the dollar is at a historically high level," emphasizing, "It is necessary to pay attention from the perspective of cyclical rotation of economically sensitive stocks with expectations of earnings improvement."

Daishin Securities also predicted further stock market gains in their weekly outlook report.

Researcher Moon Nam-jung said, "In the second week of August, the market is expected to continue rising without any justifiable reason," adding, "Since the 2000 dot-com bubble, the market is at a level that could be considered overheated in terms of returns, and there is a high possibility that an overshooting, which appears in the final stage of an upward market trend, will be reproduced."

Moon analyzed, "The basis of the overshooting was triggered by unprecedented monetary and fiscal policies," and "As financial easing policies of various countries begin to penetrate the real economy in the third quarter, the possibility of improvement in the economy and corporate profits has increased."

He explained that although noise has emerged during the agreement process of the United States' fifth economic stimulus package currently under discussion, both parties agree on the framework of bipartisan cooperation to maintain economic recovery continuity, making it highly likely that momentum will accelerate before the second week of August.

He continued, "While the agreement on the US fifth economic stimulus package is the background for the stock market overshooting, the global stock market is likely to make new history."

However, he advised that since a period to reduce signs of overheating in the stock market is necessary, investors should take this opportunity to lower their investment weight in the short term.

There is an analysis that the strength of growth stocks will continue for the time being.

Researcher Noh Dong-gil of NH Investment & Securities said, "Although the stock market valuation burden has increased, policy coordination among countries, expectations for COVID-19 vaccine development, and abundant liquidity are driving the stock market rise," adding, "It is effective to build a portfolio focused on growth stocks while also paying attention to some value stocks with relatively less valuation burden."