[Good Morning Stock Market] KOSPI on the Brink of '3000 Level'... "Short-term Surge Concerns Spread"

KOSPI Falls 2% for Two Consecutive Days... A Breather Phase
"Overheating Relief Zone, Additional Profit-Taking Expected"

[Asia Economy Reporter Minji Lee] The KOSPI appears to have entered a consolidation phase after experiencing a correction of over 2% for two consecutive days. Concerns over foreign capital outflows due to the rapid rise in the US 10-year Treasury yield, coupled with the burden of a short-term surge, negatively impacted the stock market.

[Image source=Yonhap News]

◆ Seonghoon Seo, Samsung Securities Researcher = On the 18th (local time), European stock markets showed an upward trend as China's GDP growth rate exceeded market expectations. The pan-European Euro Stoxx 50 index rose 0.1%, Germany's DAX index increased by 0.44%, and France's CAC 40 index went up by 0.1%. Europe is highly sensitive to the Chinese economy. The New York Stock Exchange was closed in observance of Martin Luther King Jr. Day.

China's GDP growth rate for the fourth quarter of last year increased by 6.5% compared to the same period the previous year, surpassing the market forecast of 6.2%. Considering that the first quarter of last year recorded -6.8%, this indicates a clear V-shaped recovery. The industrial production index for December last year also rose by 7.3% year-on-year, exceeding the market expectation of 6.9%.

However, concerns about COVID-19 variants continue. According to the UK National Health Service, the number of COVID-19 hospitalizations in the UK currently exceeds 37,000, the highest level since the pandemic began. The variant originating from the UK is now spreading to major countries including the United States.

In this context, the domestic stock market is expected to undergo further corrections. Given the significant short-term gains, additional profit-taking may occur. Although the KOSPI is currently in a phase of resolving some overheating, a phased buying approach is considered effective when entering the market.

◆ Jaeseon Lee, Hana Financial Investment Researcher = The KOSPI correction is intensifying. As of the previous day's closing price, the KOSPI retraced to 3,014 points. This correction is analyzed as reflecting overlapping negative factors that the market had overlooked. The correction began with the sharp rise in long-term US Treasury yields; the US 10-year Treasury yield has risen nearly 20 basis points (1bp=0.01%) since the beginning of the year, hovering around the 1% level. This reflects concerns that the issuance burden of government bonds may increase if the $1.9 trillion economic stimulus package proposed by the Biden administration is implemented.

There are also forecasts that if the large-scale stimulus leads to economic recovery and inflation, the US Federal Reserve's timeline for interest rate hikes could accelerate. However, the actual likelihood of this is considered low. Looking at US economic real indicators, the improvement in sentiment indicators is still slow. Since the Fed is aware of this, it is predicted that it will not take a hawkish stance strong enough to impact the stock market.

From the perspective of the domestic stock market, the recent rise in interest rates is analyzed to have provided an excuse for foreign investors to realize profits. The KOSPI has historically experienced strong corrections when the US 10-year Treasury yield fluctuates around 30 basis points. Additionally, the rise in individual investors' margin loan balances has coincided with the correction, exacerbating anxiety. In the short term, a consolidation phase is necessary due to valuation increases and the highlighting of credit risks.

However, the medium- to long-term attractiveness remains high. Among major countries' stock markets, the KOSPI's EPS growth rate this year ranks among the top, and the speed of upward earnings revisions since the beginning of the year is faster compared to other emerging markets such as Taiwan, China, and India. If a short-term correction occurs, phased buying of electric and hydrogen vehicle companies, which have been less affected by rising interest rates, is effective. Also, it is appropriate to maintain positions rather than sell in sectors such as banks, displays, cosmetics, and software, which have low valuation pressure and low growth in margin loans.