[Good Morning Stock Market] "KOSPI Takes a Breather, Attention Should Expand to Oversold Large-Cap Stocks"

[Asia Economy Reporter Minji Lee] Last week, the KOSPI experienced extreme volatility due to inflation fears and concerns over monetary policy tightening, but further declines are not expected. Market experts advise using the period of increased volatility as a buying opportunity, focusing on large-cap stocks that have been oversold.

[Image source=Yonhap News]

◆ Namjung Moon, Researcher at Daishin Securities = Inflation in the first half of the year is inevitably high due to the base effect from the first half of last year. As we enter the second half, the inflation rate is bound to decrease again due to the base effect. The impact of inflation on the stock market is expected to shift from temporary volatility around the May Consumer Price Index (CPI) announcement to gradually diminishing influence.

According to the OECD Leading Economic Index, the U.S. economy entered a recovery phase after hitting a low point in April last year and moved into a boom phase in January this year. Since the low interest rate policy maintained during the economic trough and recovery phase is now accompanied by inflation driven by a rapid growth rate, the stock market is entering a phase of rising prices, making inflation a positive factor. The upward trend in the stock market that has continued since the beginning of this year is expected to remain valid in the second quarter as well.

A notable pattern in the U.S. stock market's rise since the COVID-19 shock in March last year is the repeated process of cooling overheated short-term rallies through speed adjustments. June and September last year are representative examples, as are January and May this year. In conclusion, if temporary volatility for speed adjustment occurs periodically during the upward trend, there is no need to be swept away by the mood.

◆ Seungjin Shin, Researcher at Samsung Securities = Last week's weekly decline was 1.4% for the KOSPI and 1.2% for the KOSDAQ. The market weakness was attributed to reduced component orders due to a slowdown in China's April smartphone shipments, TSMC's disappointing April sales announcement, and inflation pressure concerns following a U.S. consumer price index release that exceeded expectations.

Last week, foreign investors sold a net 6.4 trillion KRW worth of stocks in the KOSPI market. Selling was concentrated on the IT trio?Samsung Electronics, SK Hynix, and Samsung Electro-Mechanics?due to reduced orders from Chinese smartphone manufacturers, which caused weakness in Taiwanese and U.S. tech stocks.

The inflationary pressure from the normalization of economic activities was temporarily resolved by last week's correction. However, rising expected inflation may burden high-valuation growth stocks, necessitating portfolio adjustments. A response focusing on large-cap stocks with relatively large declines compared to fundamentals and cyclical value stocks is effective.

Eco-friendly vehicles such as Samsung SDI, Kia, SK Innovation, and LG Electronics remain themes to watch. A summit between Korea and the U.S. is scheduled for the 21st, where investment expansion and growth momentum are expected to become visible for companies with competitive advantages in semiconductors, automotive batteries, and electronic components.