[Asia Economy Reporter Lee Seon-ae] Last week, the KOSPI, overshadowed by concerns of an economic recession, hit a year-to-date low and slid to 2200 during intraday trading. It is expected to continue its sluggish trend this week as well. With no clear rebound in sight, a cautious sentiment is likely to prevail for the time being. Although technically the market is at a 'bottom' now, stagflation concerns?stemming from rising inflationary pressures amid an economic downturn?are dampening investor sentiment. If a decline in second-quarter earnings is confirmed, the volatility caused by worsening supply and demand conditions will increase, making downward pressure inevitable.
On the 3rd, securities firms projected the KOSPI band for this week to be between 2260 and 2400 points. Technically, the current price is at the bottom, but there is also a possibility of further decline. Kim Dae-jun, a researcher at Korea Investment & Securities, said, "While the KOSPI is indeed undervalued, considering the decrease in credit balances, the market may continue to be volatile at the beginning of the month," adding, "It is an environment where it is difficult to gauge the bottom." He further noted, "However, based on past experience, there is a possibility that a support line will form around 2200 points, which corresponds to a 12-month forward price-to-earnings ratio (PER) of about 8 times."
The economic indicator that the market is focusing on this week is the U.S. Consumer Price Index (CPI) for June. However, the release of this data is scheduled for the 13th (local time). As a result, until this indicator is confirmed, investors' cautious sentiment is likely to strengthen.
The minutes of the Federal Open Market Committee (FOMC) meeting, to be released on Wednesday, are also expected to be an important indicator. Through the minutes, it is highly likely that the stance of Federal Reserve (Fed) officials will be checked. Additionally, the minutes are expected to provide forecasts on the future interest rate path, including the possibility of a giant step (a rate hike of 75 basis points or more) in July.
As the second-quarter earnings announcements begin in earnest, there are also forecasts that downward pressure will intensify. Starting with Samsung Electronics on the 7th, second-quarter earnings reports will continue. Considering the recent two-week trend of downward earnings revisions for KOSPI companies, worsening supply and demand conditions centered on sectors with confirmed earnings contractions are expected to weigh on the index.
Kim Young-hwan, a researcher at NH Investment & Securities, explained, "The second-quarter earnings season is opening, but earnings forecasts for KOSPI companies have been revised downward over the past two weeks," adding, "In particular, the earnings forecast for Samsung Electronics has been significantly lowered." He also predicted, "Since this is a week before the market's most anticipated inflation indicator is confirmed, it will likely be a period of high cautious sentiment rather than one where a clear direction is established."
Choi Yoo-jun, a researcher at Shinhan Financial Investment, said, "From July, domestic corporate earnings estimates are expected to be revised downward in earnest," adding, "Although much of this has been priced into stock prices, ongoing macroeconomic uncertainties are expected to keep stock prices below book value."
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