[Good Morning Stock Market] Mixed Market Sentiment... KOSPI Expected to Bottom at 2640 This Week

[Image source=Yonhap News]

[Asia Economy Reporter Lee Seon-ae] On the 18th, the domestic stock market is expected to start higher but volatility is anticipated due to various influencing factors.

◆Sangyoung Seo, Researcher at Mirae Asset Securities= Last Friday, the Korean stock market declined due to weakened expectations of a peak in U.S. inflation and a sharp rise in U.S. Treasury yields, which dampened investor sentiment. In particular, the weakening of the Korean won, with the won/dollar exchange rate rising by 5 won, and disappointment selling following China's announcement to keep the MLF rate unchanged also weighed on the market. The expansion of net selling by foreigners and institutions created supply-demand pressure that led to the index decline. Meanwhile, although most global stock markets were closed ahead of Easter, the U.S. industrial production data released that day showed solid performance, boosting confidence in the economy, which is positive for the Korean stock market. Furthermore, last Friday, China's National Development and Reform Commission announced an expansion of investment in data centers, and the People's Bank of China announced liquidity supply measures such as a reserve requirement ratio cut, both of which are favorable for overall investor sentiment.

With additional Western sanctions against Russia due to the Ukraine war imminent, it is also positive that Russia's Gazprom continues to supply gas to Europe. Meanwhile, China's real economy indicators are being released, and retail sales are expected to shrink by 3.0% year-on-year, indicating further contraction compared to last month's figures, which is a concern. However, although these Chinese economic indicators may be weak, this is expected to have limited impact as it increases the likelihood of expanded stimulus measures by the Chinese government. Considering this, the Korean stock market is expected to start about 0.5% higher, with changes anticipated depending on the release of China's real economy data, solid U.S. economic indicators, and China's liquidity supply measures.

◆Kyungmin Lee, Researcher at Daishin Securities= The global financial market is likely to remain unstable this week. This is because China's Q1 GDP growth rate and March real economy indicators are inevitably weak, and hawkish Federal Reserve (Fed) officials' press conferences are scheduled. The market is expected to fluctuate between concerns over China's economic instability versus expectations for additional stimulus (such as interest rate cuts), rising oil prices due to uncertainty over Ukraine versus concerns about Chinese demand, and downward pressure on oil prices due to the Fed's hawkish stance.

For the time being, the KOSPI is likely to continue short-term box range fluctuations between 2650 and 2720 (with a lower bound of 2600 in April). If a short-term sharp decline occurs due to domestic or international issues this week, it will be a process of price adjustment to reduce the weight of negative factors. This should rather be seen as an opportunity to increase exposure. Maintain a strategy of increasing exposure and staggered buying around the 2600 level of the KOSPI, utilizing volatility.

From Q2 through the end of the year, the preferred sectors are semiconductors, internet, automobiles, and secondary batteries. Considering price levels and stock price levels, semiconductors and internet sectors are in a range where staggered buying is possible. Their relative strength compared to the KOSPI is at the lower end of the long-term trend and box range since 2010. On the other hand, automobiles and secondary batteries have recently rebounded sharply, increasing short-term price pressure and reaching important resistance levels. While the opinion to increase exposure based on industry conditions and earnings expectations is maintained, it is thought necessary to delay buying timing rather than following the recent rise.

◆Jiyoung Han & Seheon Kim, Researchers at Kiwoom Securities= The Korean stock market is expected to be influenced by the Fed's tightening aftershocks, major Chinese real economy indicators, and earnings results of key companies such as NAVER, Netflix, and Tesla. The weekly KOSPI range is expected to be 2640 to 2770. Although major external events such as the March Federal Open Market Committee (FOMC) minutes and March U.S. consumer prices have concluded, the aftershocks of the Fed-induced tightening are continuing. Since April, foreigners have aggressively net sold about 3.1 trillion won in the KOSPI, exerting downward pressure mainly due to macroeconomic uncertainties. However, a notable point regarding foreign demand is that even among passive foreign investors, differentiated trading patterns are observed between emerging markets and Korea.

While funds have flowed out of the EWY ETF (100% Korea weighting), a representative passive channel used by foreigners investing in the Korean stock market, since March, funds have flowed into the IMEG ETF (approximately 12% Korea weighting vs. 27% China, 16% Taiwan, 14% India, etc.), which targets emerging markets, during the same period. This suggests that despite an expanded perception of a bottom in emerging market stocks due to concerns over Fed tightening and expectations for China's economic stimulus (such as the 25bp reserve requirement ratio cut on April 15), the incentive to bet individually on the Korean stock market has not yet increased. This phenomenon appears because most of the top domestic market capitalization stocks are highly sensitive to external variables. However, as inferred from the KOSPI's resilience last week, the domestic market is also digesting macroeconomic negatives (supply shortages, inflation shocks, Fed tightening burdens, etc.). Of course, major macroeconomic indicators such as China's industrial production and retail sales, and manufacturing PMIs in the U.S. and Europe are pending this week. Since these indicators have less macro impact compared to inflation or employment data, their influence on index direction and foreign demand during the week is expected to be limited. As the Q1 earnings season is in full swing, market attention is expected to shift to earnings of major domestic and international growth and tech companies such as NAVER, Netflix, and Tesla during the week.

In conclusion, the current domestic market level is a valuation-attractive zone even from the perspective of foreign investors, so inflows at the index level can be expected. Furthermore, foreign demand conditions and stock price resilience are expected to vary according to changes in earnings expectations across sectors.