[Weekly Market Outlook] Box Range Fluctuations Until US Presidential Election... "Declining Upward Momentum"

[Asia Economy Reporter Oh Ju-yeon] As concerns over the resurgence of the novel coronavirus infection (COVID-19), noise around the US stimulus package, and strengthened domestic major shareholder requirements have increased, volatility in the stock market has expanded, leading to profit-taking sales. Big Hit Entertainment, which received hot attention in the second half IPO market, formed an opening price of 270,000 won on the first day of listing on the 15th, double the public offering price, but then faced a flood of sell orders and closed at 200,500 won on the 16th.

With the upward momentum of the domestic stock market somewhat slowing, the KOSPI, which rose near the 2400 level early last week before falling again, is expected to see some rebound buying in the third week of October (19-23), but the upside is likely to be limited depending on external factors.

On the 18th, Hana Financial Investment projected the KOSPI's expected range for the following week to be 2330?2410. Amid fading expectations for the passage of US fiscal policy, COVID-19 cases in the US have recorded over 50,000 for two consecutive weeks, and new cases in the UK have quadrupled over the past three weeks, leading to concerns over COVID-19 spread and weakening stock market momentum. The won-dollar exchange rate entered the 1140 won range due to foreign buying inflows and yuan strength.

Researcher Lee Jae-sun of Hana Financial Investment explained, "Currently, the market sentiment is dominated by a wait-and-see attitude."

NH Investment & Securities forecast the KOSPI to move between 2320 and 2400 next week. Expectations for the third-quarter earnings season and potential year-end dividend-related fund inflows are considered positive factors, while doubts about economic recovery, uncertainties related to the US presidential election, and the suspension of COVID-19 drug clinical trials are cited as negative factors.

Researcher Noh Dong-gil of NH Investment & Securities said, "Both the US and domestic stock markets are experiencing a slowdown in their pace of increase," adding, "This is due to the reduced likelihood of realization of variables that had been the biggest drivers of optimism."

The US Congress is struggling to reach an agreement on an additional stimulus package before the presidential election, and the possibility of election disputes and consequent delays in stimulus measures are expanding concerns over a fiscal policy gap. The suspension of COVID-19 drug clinical trials is also negative for risk asset investment sentiment.

Researcher Noh said, "Uncertainties related to the presidential election, which seemed to be subsiding, may resurface again following the final TV debate." He added, "The stock market is expected to fluctuate within a box range until the US presidential election," and "It is also necessary to consider that individual investors' funds may be withdrawn this year to avoid capital gains tax at year-end."

SK Securities noted that as external uncertainties such as US presidential election uncertainty and delays in economic stimulus measures increase, the stock market's upward momentum is slowing, and policy uncertainties are expected to continue for the time being. Fortunately, expectations for earnings improvement are rising, with semiconductor, automobile, IT home appliances, and display sectors being representative.

Researcher Han Dae-hoon of SK Securities said, "The third US presidential debate scheduled for next week and whether discussions on additional stimulus measures, which have become practically difficult before the election, will take place are important issues, but the reality is not easy." He added that policy uncertainties are a burden that will continue until, and possibly after, the election.

Researcher Han said, "Fortunately, expectations for the third-quarter earnings season are high," noting, "The KOSPI's third-quarter net profit is expected to increase by 15.9% year-on-year and 26.3% quarter-on-quarter." He continued, "Ultimately, existing leading stocks also have good earnings," adding, "In Korea, earnings improvements are expected in the semiconductor, automobile, IT home appliances, and display sectors. In the context of the disappearance of expectations for additional stimulus discussions and persistent US presidential election uncertainties, sectors with high earnings improvement expectations can be alternatives."