[Good Morning Stock Market] KOSPI Smiles After a While, Will It Break the 2500 Level?

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[Asia Economy Reporter Minji Lee] Following the release of the U.S. Consumer Price Index (7.9%) for October, which alleviated concerns about inflation, the KOSPI is expected to continue its upward trend on the 14th. Looking at last Friday's U.S. stock market, the Nasdaq index, which includes semiconductors and major tech stocks, rose by as much as 1.8%, supported by the weak dollar trend. Recent news that the Chinese government has potentially begun to retreat from its zero-COVID policy is also expected to bolster the KOSPI's rise.

However, experts advise against blindly jumping on the rising trend. Although a short-term rebound may continue, the overall global economic situation is deteriorating.

Kyungmin Lee, Researcher at Daishin Securities: “In December, concerns about recession and caution over interest rate hikes will both intensify.”

The global economic situation is worsening, and earnings forecasts are being revised downward. The fundamental drivers necessary for a sustained upward trend are deteriorating. Nevertheless, the stock market has not fully reflected this as it remains focused on monetary policy issues. Looking back at last month’s market, despite weak economic indicators being interpreted as another negative factor, the market actually reduced volatility considering changes in monetary policy.

For the stock market to form an upward trend, there needs to be an expectation that the economy will recover at some point, if not immediately. This is because while global financial markets have been reacting sensitively to inflation and monetary policy, downward pressure on the economy has steadily increased. In this CPI report, the slowdown in prices of goods and services related to consumption led to the CPI surprise. Considering the impact of inflation and monetary policy on the economy, a recession is expected to become visible from the fourth quarter, six months after the peak in interest rates.

Particularly concerning is the Federal Reserve’s caution about shifting monetary policy. Consumer inflation expectations still exceed 5%, and although the unemployment rate has risen, it remains below the natural unemployment rate (4%). If, after mid-December, anxiety over monetary policy and recession fears both increase simultaneously, the KOSPI and global stock markets are expected to face significant downward pressure.

Jungho Shin, Researcher at Ebest Investment & Securities: “Attention should be paid to neglected sectors rather than growth stocks like Kakao.”

Although market sentiment has suddenly changed, it is important to calmly observe the market in such times. The exchange rate has dropped by more than 7% on a weekly basis, but the upside is quite limited. The KOSPI’s Price-to-Book Ratio (PBR) is influenced by export growth rates, and the OECD’s Economic Diffusion Index signals a decline in export growth rates through the first half of next year. Around the year-end and early next year, a box range movement is expected, with relief that the extreme fear level of PBR 0.8 times has been surpassed and resistance at 1 times.

While growth stocks like Kakao Group have seen strong rebounds due to concentrated demand, it is uncertain whether this will lead to a sustained upward trend. Past market trends show that short-term concentration of demand and excessive valuation increases often lead to prolonged valuation declines. Examples include Amorepacific in 2015 and Celltrion in 2018.

Conversely, attention should be paid to sectors that failed to rise during this rebound phase. Utilities, media, education, and automobiles did not show upward trends due to concerns over earnings, but given that earnings declines have been sufficiently reflected in stock prices and upward pressure is greater than downward pressure, these sectors warrant interest. The automobile sector has shown sluggish stock performance due to rising interest rates, demand slowdown, U.S.-bound inventory, and excessive supply-side constraints leading to slow sales recovery.

The U.S. real wage growth rate serves as a leading indicator for the Mannheim Used Car Price Index, and a rebound in used car prices is expected by the second quarter of next year. With the easing of the strong dollar phase, global demand recovery and U.S. domestic automobile demand are also predicted to improve after mid-next year.