"Cruel October Begins" KOSPI Faces Downward Pressure This Week... Oversold Strategy if It Falls to 2050

[Image source=Yonhap News]

[Asia Economy Reporter Lee Seon-ae] Following last week, the KOSPI (from the 4th to the 7th) is also expected to face downward pressure this week. Due to strong tightening policies, global economic recession concerns, and exchange rate effects, a sluggish market that breaks the yearly low again seems inevitable.

On the 3rd, the securities industry predicted that the KOSPI could drop to the 2050 level this week. However, 2050 is seen as a lower support line, and if it falls to 2050, the valuation attractiveness increases, suggesting an opportunity to approach it as an oversold condition. The upper limit is the 2200 level, and breaking through this is practically difficult.

NH Investment & Securities pointed to global recession concerns and the 'Dollar Smile' phenomenon as the reasons for the domestic market decline this week. They presented a KOSPI expected range of 2070 to 2200, maintaining a conservative view. However, they advised formulating an oversold investment strategy if it falls below 2050.

Researcher Kim Young-hwan of NH Investment & Securities said, "Due to recession concerns and a strong dollar, the global financial market is unstable, making a short-term rebound difficult," adding, "The stock price has sharply dropped in the short term, increasing valuation merits, and if the KOSPI falls below 2050, it is worth approaching as an oversold condition."

The 'Dollar Smile phenomenon' cited by Researcher Kim as a factor for the KOSPI decline refers to the dollar strengthening when the global economy is in recession or when the U.S. economy shows relative strength, driven by safe-haven demand and widening growth gaps. He analyzed, "The dollar's dominance is damaging economies outside the U.S.," and pointed out that the UK, China, and Japan, which cannot keep pace with the U.S.'s tightening monetary policy, are potential risk countries.

As factors for an increase, valuation merits and Tesla's Artificial Intelligence Day (AI Day) were mentioned. Researcher Kim evaluated, "AI Day is an event where Tesla annually showcases the latest technologies across various business sectors," and added, "If Tesla announces more advanced developments than market expectations in the robotics field, a new theme in the service robot sector could emerge."

Additionally, he recommended, "For individual stocks, it is advisable to pay attention to small themes and focus on individual stock momentum," suggesting interest sectors such as automobiles, which have a high export ratio in sales and receive payments in dollars, and K-Entertainment, which has succeeded in expanding fandom in the U.S. music market, among export stocks with low inventory pressure.

This week’s stock market is expected to see increased volatility due to the lack of clear rebound factors and the scheduled release of major U.S. economic indicators such as employment and manufacturing indices, along with multiple speeches by Federal Reserve (Fed) officials. Although the Fed’s tightening stance will not change, these factors may help gauge the future pace of tightening adjustments.

The securities industry forecasts that the harsh baton of September will be fully passed on to October. Kiwoom Securities researcher Han Ji-young analyzed, "With two consecutive quarters of negative growth, a technical recession has been confirmed, and the possibility of negative growth in the third quarter is increasing," adding, "As the risk of an official recession rises, the stock market is spreading the view that it will be difficult to withstand the Fed’s tightening."

The exchange rate forecast was presented as 1350 to 1460 won. NH Investment & Securities researcher Kwon Ah-min diagnosed, "Excluding the financial crisis, looking at the real effective exchange rate since 2010, the won-dollar exchange rate is judged to be near the upper limit," and added, "Considering the high proportion of long-term foreign debt, including up to 2008, the possibility of further exchange rate increases is dominant."

Meanwhile, according to the Korea Exchange, last week the KOSPI closed at 2155.49, down 134.51 points (5.87%) from the previous week (2290.00). After a sharp 3% drop on the first day of the week, it fell 2.45% on Wednesday, marking the lowest point in 2 years and 2 months. Subsequently, it fell another 0.71% on the last trading day of the week, rewriting the yearly low.