This Week's Stock Market... Tightening Possibility and Lunar New Year Holiday Ahead "Cautious Sentiment Weighs Down"

Securities Market Predicts KOSPI Range Between 2800 and 2950

[Image source=Yonhap News]

[Asia Economy Reporter Lee Seon-ae] This week (24th-28th), the domestic stock market is expected to remain cautious ahead of the US Federal Reserve's (Fed) potential tightening and the Lunar New Year holiday.

According to the Korea Exchange on the 23rd, last week (17th-21st), the KOSPI showed a downward trend, slipping to the 2830 level. On the last trading day of the week, the 21st, the market closed at 2834.29, down 28.39 points (-0.97%) from the previous trading day.

Externally, the global stock markets were affected by adjustments due to the rise in the US 10-year Treasury yield following the Fed's accelerated monetary tightening. Domestically, the subscription for LG Energy Solution's public offering, considered the largest IPO ever, attracted 114 trillion KRW, intensifying supply and demand concentration.

Yang Ji-yoon, a researcher at NH Investment & Securities, stated, "The general investor subscription for LG Energy Solution took place on the 17th and 18th, with subscription deposits reaching 114.1 trillion KRW and 4.42 million subscription cases, setting a record high. As expectations for the stock price after listing increased, movements of funds from institutions and individuals preparing cash were observed."

The securities industry forecasts the KOSPI band this week to range from a minimum of 2800 to a maximum of 2950. Positive factors include inflows of personal funds following the large IPO, the Korean government's domestic demand stimulus measures, and expectations for policies related to the presidential election pledges. Negative factors include the Fed's tightening outlook, the global spread of COVID-19, and cautious sentiment ahead of the Lunar New Year holiday.

NH Investment & Securities expects the KOSPI band for the last week of January to be between 2800 and 2950, while Hana Financial Investment estimates it between 2840 and 2940. Kim Young-hwan, a researcher at NH Investment & Securities, said, "At the end of 2022, the probability of the US base rate being 1.00-1.25% was 32.5%, and 1.25-1.50% was 27.2%. Discussions on rate hikes and asset reduction are expected at the FOMC (Federal Open Market Committee) on the 26th-27th, but the uncertainty is unlikely to be fully resolved."

Cautious sentiment ahead of the Lunar New Year holiday also exists. Generally, trading volume tends to decrease before the holiday closure, strengthening cautious sentiment. Uncertainties remain due to the possibility of a COVID-19 resurgence during the holiday and the impact of Omicron on major economic indicators to be announced at the beginning of the month. The Korean stock market will be closed for the Lunar New Year holiday from January 31 to February 2, while the Chinese stock market will be closed for the Spring Festival from January 31 to February 4.

The Korean government's domestic demand stimulus measures are also a variable. Researcher Kim said, "The Korean government plans to prepare a one-point supplementary budget of about 14 trillion KRW. Of this, 12 trillion KRW will be allocated to support small business owners. Both the Democratic Party and the People Power Party are demanding an increase in the supplementary budget beyond the government's proposal, so there is also a possibility of a second supplementary budget after the March presidential election."

A supporting factor for the downside is the potential inflow of personal funds following the large IPO. The subscription deposits of 114.1 trillion KRW for LG Energy Solution's public offering on the 17th and 18th confirmed the abundance of funds around the stock market. Researcher Kim expects, "While some of these funds may follow LG Energy Solution immediately after its listing on the 27th, some funds will flow into other large-cap stocks afterward."

While the US is gauging the timing of interest rate hikes, China is actively supplying liquidity. Chinese authorities have lowered the Loan Prime Rate (LPR), which serves as the effective base rate, for two consecutive months, emphasizing economic recovery through liquidity supply. Ahead of the National People's Congress (NPC) in early March, there is a possibility of additional easing policies in the first quarter. Lee Jae-sun, a researcher at Hana Financial Investment, said, "This is positive news for Korea, which is structurally connected to China's supply chain."

Notable economic schedules this week include △ US Markit Manufacturing and Services Purchasing Managers' Index (PMI) preliminary release (24th) △ US FOMC meeting and Tesla earnings (26th) △ LG Energy Solution listing (27th) △ US December personal income (28th).