[Weekly Market Outlook] "Will It Rise Further?" Between Optimism and Caution, KOSPI Expected to Reach '2750'

NH Investment & Securities, Hana Financial Investment Suggest KOSPI Upper Range 2730~2750 for Second Week of December
"Overheated Market Sentiment Causes Concern...Possibility of Short-Term Profit-Taking Sell-Off"

[Asia Economy Reporter Oh Ju-yeon] The domestic stock market has surpassed the all-time high of 2700 points and is now eyeing the 2800 level. With forecasts suggesting that the KOSPI may reach 3000 next year, the year-end stock market is heating up day by day. While the market is keeping the possibility of further index gains open, there are also opinions emphasizing caution in investment due to the current overheated state of the market, drawing attention.

NH Investment & Securities predicted that the KOSPI would move between 2650 and 2750 during the second week of December (7th?11th). Optimism related to COVID-19 vaccine approvals, expectations for emerging market economic improvements, foreign capital inflows, and hopes for global stimulus measures are cited as upward factors, whereas U.S. state-level re-lockdown measures and signs of stock market overheating are downward factors.

The KOSPI surpassed the 2,700 mark for the first time in history. On the 4th, the KOSPI opened at 2,705.34, up 9.12 points (0.34%) from the previous session, showing a strong upward trend. On the same day, the won-dollar exchange rate started at 1,092.5 won, down 4.5 won from the previous trading day. The photo shows the Hana Bank dealing room in Jung-gu, Seoul, that morning. Photo by Kim Hyun-min kimhyun81@

NH Investment & Securities analyzed this while introducing the market’s split between optimism and caution. From the optimistic economic perspective, the second week of December could be a week where expectations for economic stimulus in major advanced countries such as the U.S. and Europe continue. Progress in negotiations on new stimulus packages between U.S. House Speaker Nancy Pelosi and Republican Senate Majority Leader Mitch McConnell has revived the previously diminished expectations for U.S. fiscal stimulus, potentially fueling risk asset preference.

Attention should also be paid to the European Central Bank (ECB) monetary policy meeting on the 10th. Researcher Labor Gil from NH Investment & Securities stated, "In Europe, amid persistent expectations for an expansion of the PEPP (Pandemic Emergency Purchase Programme) at the ECB monetary policy meeting, global investment banks anticipate an expansion of PEPP and an extension of the TLTRO3 (Targeted Longer-Term Refinancing Operations) maturity at the December ECB meeting."

Researcher Labor added, "Considering that the ECB has recently continuously expressed its willingness to expand bond purchases, it is highly likely that the results will meet market expectations. In this case, combined with expectations for COVID-19 vaccine rollouts, the optimistic view on economic improvement can continue."

However, the recent sharp rise in the stock market showing signs of overheating is a concern. The VIX (S&P 500 Volatility Index) has rapidly fallen to the low 20% range, but given that the VIX is structurally high due to asset price increases and rising hedging costs for tech stocks, the current level indicates an overheating pattern without hedge transactions. Additionally, the KOSPI RSI (Relative Strength Index, ratio of up days to down days) has continuously exceeded the overheating threshold of 70%, which also warrants attention.

Researcher Labor said, "Despite optimism surrounding the stock market, considering the high multiple burden and signs of overheating, time is needed to resolve these issues. Going forward, the stock market may react more sensitively to negative factors than positive ones."

Hana Financial Investment projected the KOSPI range for the second week of December to be 2650?2730. Since expectations for COVID-19 vaccine development have already been priced in, attention should be paid to short-term profit-taking selling pressure. The UK has already approved the use of the Pfizer vaccine, and the U.S. is expected to make an emergency approval decision for the Pfizer vaccine on the 10th.

Researcher Lee Jae-sun from Hana Financial Investment diagnosed, "The market is likely to gradually increase its sensitivity to the recovery of the real economy."

Some suggest that in the current situation where the burden of stock market gains is high, it is necessary to increase interest in stocks with stable fundamentals (corporate earnings outlook) and low valuation burdens.

Kiwoom Securities analyzed that among KOSPI 200 stocks with existing estimates, 126 companies?about 76% of all companies?are expected to show year-on-year growth or turn profitable in operating profit for the upcoming fourth quarter. In such a phase where corporate earnings outlooks become common, stock prices tend to rise rapidly due to expectations of earnings improvement. Furthermore, as corporate valuations also tend to rise frequently, the number of companies whose price-to-earnings ratio (PER) falls below the five-year average has decreased recently, making relatively undervalued stocks with attractive valuations scarce.

Researcher Choi Jae-won said, "In a situation where corporate valuation burdens have increased, it is necessary to select stocks that have earnings momentum and are judged to have relative valuation attractiveness."