Stock Market Slump at the '7-Bu Ridge'... Retail Investors at a Crossroads

Stock Market Slump, Approaching the Final Stretch
Possible Further Decline Ahead
Individual Investors May Also Switch to Selling

[Asia Economy Reporter Hwang Junho] How long will the stock market slump caused by the 'price shock' continue?

There is an analysis that the stock market, trapped in economic uncertainty, has passed the 70% mark of its slump.

According to the Korea Exchange on the 22nd, the KOSPI started the day with gains but soon turned to losses. Concerns about the economy due to soaring prices, with the Bank of Korea projecting an annual consumer price inflation rate in the 5% range, have deeply rooted throughout the stock market. Currently, the price-to-earnings ratio of the KOSPI has fallen to 8.9 times, close to the post-COVID-19 low of 8.8 times.

It still takes time to overcome the wave of inflation. Researcher Heo Jaehwan of Eugene Investment & Securities said, "It will take time to break out of the bear market. However, we have passed the 70-80% mark." Since the 2000s, the KOSPI has dropped by an average of 40% during periods of declining operating profits (Financial Crisis -78%, US-China Trade Dispute -55%). However, profits have already decreased by 20% from the fourth quarter of last year to the present. A further 10-20% decline is expected, which Heo’s analysis translates to the KOSPI stopping its fall in the 2050-2300 range.

To stabilize the economy, the government has taken measures such as lowering the corporate tax rate to 22% and changing the comprehensive real estate tax threshold to properties with a publicly announced price exceeding 1.4 billion KRW, but it will take time for these to manifest as effects driven by 'productivity-led growth.' In particular, the securities industry expects that if the won-dollar exchange rate remains around the current mid-1200 KRW level, import prices and domestic consumer price inflation will slow down at some point beyond the third quarter.

There are also concerns that if the stock market falls further, even the investment sentiment of individuals who have been buying at lows could collapse. Kim Jungwon, head of investment strategy at Hyundai Motor Securities, said, "Since the beginning of the year, credit balances have decreased by 12.8%, and deposits have also dropped by 20.3%," adding, "This is the result of a combination of bargain hunting due to the market decline and market withdrawal, and if the market falls further, individuals’ capacity to respond may diminish."

The securities industry suggests focusing on sectors less sensitive to the economy while concentrating on earnings strength. Energy, transportation, trading companies, and capital goods fall into this category. Additionally, high-dividend stocks with improving earnings, such as S-OIL and Shinhan Financial Group, are seen as potential investment points.