[Kospi 2600 Era] "Year-End 2700 Challenge Driven by Economic Recovery and Foreign Buying"

Customer Deposits Reach Record High of 65 Trillion Won... Potential for Further Rise Due to Foreign Buying
Concerns Over Early Year-End Rally... "Focus on Exchange Rates and Economic Stimulus Measures"

On the 24th, when the KOSPI index reached an intraday all-time high, dealers were working in the Hana Bank dealing room in Euljiro, Seoul. On that day, the KOSPI opened at 2,616.28, up 13.69 points (0.53%) from the previous trading day, showing a strong upward trend. Photo by Moon Honam munonam@

[Asia Economy Reporter Minwoo Lee] Following the Kospi breaking through the 2600 mark and rising to the 2620 level during intraday trading, there are forecasts that the stock market rally will continue until the end of the year. This is because economic indicators, which had been extremely depressed due to the novel coronavirus disease (COVID-19), are improving, while the overlapping effects of major countries' economic stimulus measures and expectations for COVID-19 vaccines are clearly reviving investor sentiment. In particular, attention is focused on whether foreign investors, who have consistently sold throughout this year, will lead the upward trend by engaging in explosive buying.

On the 24th, the Kospi opened at 2616.28, up 0.53% (13.69 points) from the previous day. Following the breakthrough of 2600 for the first time in 2 years and 10 months the day before, it set a new all-time high in just one day. This stock market rally is powered by strong buying from foreign investors. Foreign investors, who have maintained a net buying streak for 13 consecutive trading days in the Kospi market, purchased stocks worth 988.5 billion won on the previous day alone. This is the largest single-day net purchase since July 8, 2011, when it was 1.72 trillion won. In contrast, individuals (net selling of 873.5 billion won) and institutional investors (net selling of 60 billion won) showed opposite behavior.

In the securities industry, there are forecasts that the rising market will continue until the end of the year as expectations for domestic corporate earnings improvement and economic recovery coincide. Although the market usually declines from its year-end peak, it is analyzed that the upward momentum will continue until the end of the year. Yoon Hee-do, head of the Research Center at Korea Investment & Securities, explained, "Customer deposits have reached a record high of 65 trillion won," adding, "With the expectation that the low-interest-rate trend will become entrenched, the lack of suitable investment destinations, combined with expectations for economic recovery, corporate earnings improvement, and inflow of foreign buying, is raising hopes for further stock market gains."

There are also rosy forecasts that the Kospi will reach the 2700 level within the year. SK Securities and Eugene Investment & Securities have set the upper limit of the Kospi for the fourth quarter at 2700. Hi Investment & Securities expects it could even reach 2750 within the year. Choi Seok-won, head of the Research Center at SK Securities, said, "Under low interest rates, the buying enthusiasm is creating a solid waiting demand," adding, "Because the supply and demand from foreigners and individuals are solid, the index is likely to repeatedly rebound after declines and finish at a higher level than now." Byun Jun-ho, head of the Research Center at Eugene Investment & Securities, explained, "The Kospi's rise of over 14% in November is unusual, so the additional upward momentum may somewhat slow down, but monthly increases of over 10% occur within an upward trend, so the upward trend will remain valid."

However, there are also opinions that the current upward trend is a phenomenon of the year-end rally being brought forward. Oh Hyun-seok, head of the Research Center at Samsung Securities, diagnosed, "It is too early to talk about overheating," adding, "However, this is the year-end rally, and December may enter a somewhat subdued phase."

Experts unanimously advised investors to keep an eye on the won-dollar exchange rate during this rising market. It is analyzed that for steady capital inflow to continue while foreign buying leads the stock market, a stable exchange rate situation must be maintained. Yoon Chang-yong, head of the Research Center at Shinhan Financial Investment, said, "The won-dollar exchange rate has fallen nearly 100 won compared to early September, threatening the 1100 won level, as it more quickly reflects export strength, expanded net dollar supply, and yuan appreciation," adding, "For it to fall below the equilibrium level of 1100 won, export conditions must maintain an upward trend, and domestic social distancing must remain at the level of the second wave to dispel latent economic concerns in the domestic stock market."

Attention should also be paid to additional economic stimulus measures from various countries in the future. This is because policy responses managing the COVID-19 shock until expectations for economic recovery are maintained and real economic conditions are sufficiently improved are important. This is why all eyes are on whether the U.S. Federal Reserve will respond with monetary policy at the Federal Open Market Committee (FOMC) meeting scheduled for December 15-16. Park Seok-hyun, head of the Macro Team at KTB Investment & Securities, predicted, "Considering the U.S. Congress's status quo since the presidential election, realistically, additional fiscal policy implementation may take time," adding, "In this case, monetary policy responses may be needed to fill the gap in additional fiscal policy momentum expected until early next year, so the Federal Reserve may take an active role ahead of this year's FOMC meeting."