[Asia Economy Reporter Junho Hwang] South Korea's stock market, which had slumped due to high-intensity interest rate hikes, is showing signs of gradually recovering, but experts warn against excessive expectations.
According to the Korea Exchange on the 28th, the KOSPI rose 10.68% from the 12th of last month to the 25th of this month. This is not limited to South Korea. During the same period, the Morgan Stanley Capital International (MSCI) All Country World Index (MSCI ACWI) jumped 13.2%.
In the securities industry, this is being interpreted as another occurrence of a 'bear market rally,' a short-term rise phenomenon that appears during stock price downturns. The first bear market rally occurred from a low of 2292.01 on July 6 to 2533.52 on August 16.
This recent stock price rise is analyzed to be due to economic indicators suggesting that U.S. inflation has passed its peak, leading to expectations that the U.S. high-intensity tightening stance will ease. The U.S. core Consumer Price Index for September and October fell to 8.2% and 7.7% year-on-year, respectively.
However, the securities industry remains cautious. Just as a stock market downturn followed the end of the first bear market rally from June to August this year, it is expected that a similar stock market decline pattern will appear after the second bear market rally ends.
The main reason is that corporate earnings have not yet reflected the economic recession. The stock price bottom formed by corporate earnings reflecting the recession usually occurs in the mid-stage of the recession. Also, despite uncertainties in inflation and some easing of the Fed's high-intensity tightening stance, a full shift to an easing policy is still difficult, making a sustained rebound unlikely.
Researcher Hyungryul Kim of Kyobo Securities said, "While the possibility of a slowdown in U.S. tightening could stabilize investor sentiment, since economic momentum has only just begun to weaken and corporate earnings are likely to deteriorate, the burden on prices will inevitably increase as stock prices rise."
Researcher Namjung Moon of Daishin Securities stated, "The fourth quarter of this year through the first quarter of next year will be a period when global stock markets pass through their lows, and due to the time lag between market expectations for economic and monetary policies and stock market reflection, volatility expansion is inevitable for a certain period." He added, "In the short term, next month, when the second bear market rally is likely to end, a stock price downturn is expected to continue."
However, Researcher Junghoon Seo of Samsung Securities noted, "The triple burden of oil prices, interest rates, and exchange rates that weighed down the stock market has recently eased," calling this "a reason why downside risk is low even during the index's consolidation phase." He continued, "Although uncertain earnings forecasts may significantly limit upward movement in stock prices, there is room for further price adjustments due to changes in external conditions," emphasizing, "Evaluating the domestic stock market as expensive based on a price-to-book ratio below 1 is an excessive undervaluation."
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