[MarketING] "Triple hardships in January... Possibility of passing the low point in Q1"

Expectations for Stock Recovery Rise but Concerns Over Uncertainty Grow

[Image source=Yonhap News]

[Asia Economy Reporter Song Hwajeong] The stock market, which closed sharply down on the last day of 2022, started the new year with an upward trend. However, the January stock market faces many hurdles, making it unlikely for this strong momentum to continue. Experts predict that the market will pass its low point in the first quarter and advise caution regarding additional purchases.

KOSPI and KOSDAQ Both Show Strength on New Year's Day

As of 11:01 AM on the 2nd, the KOSPI stood at 2,247.59, up 11.19 points (0.50%) from the previous day. The KOSDAQ rose 1.8 points (0.26%) to 681.09. Both indices showed gains exceeding 1% in early trading.

Individual investors are leading the index gains. On this day, individuals net bought 69.3 billion KRW in the KOSPI market and 13.1 billion KRW in the KOSDAQ market. Conversely, foreign investors net sold 11.3 billion KRW and 27.8 billion KRW in the two markets, respectively. Institutions sold 72.2 billion KRW in the KOSPI market but showed a net buying advantage of 8.8 billion KRW in the KOSDAQ market.

Han Ji-young, a researcher at Kiwoom Securities, said, "Stock prices will recover influenced by external events such as the US Institute for Supply Management (ISM) Manufacturing Purchasing Managers' Index (PMI), the minutes of the December US Federal Open Market Committee (FOMC), US employment indicators reflecting changes in market sensitivity to Federal Reserve (Fed) policies, and news related to China's reopening (resumption of economic activities)." She added, "Considering that as of the closing price on the 30th of last month, the trailing price-to-book ratio (PBR) of the KOSPI was 0.84 times, approaching the lower bound of the historical band again and increasing entry attractiveness, the domestic stock market this week will recover stock prices mainly for oversold stocks while digesting external events during the week."

January Low Expected to Pass... Caution Needed for Additional Purchases

The environment surrounding the stock market remains challenging. Concerns about a recession persist, and volatility is increasing due to Fed policy uncertainties and a surge in COVID-19 cases originating from China.

Kim Dae-jun, a researcher at Korea Investment & Securities, said, "The early-year stock market will move as an extension of the end of last year," adding, "In this process, the lower bound of the KOSPI will fall further." He added, "Due to global growth slowdown, high inflation, and the burden of fourth-quarter earnings to be announced soon, index rebounds will be difficult, so additional purchases should be avoided."

Labor Gil, a researcher at Shinhan Investment Corp., analyzed, "The KOSPI's monthly return in February last year was the second worst since 2000," and "Typically, the dividend drop effect and fluctuations due to major shareholder capital gains tax have attempted recovery over time, but in January this year, it is difficult to find clues for easing index volatility." He noted that for the market to seek a rebound, it is necessary to confirm either an end to earnings estimate declines or signs of a slowdown in US wage growth, but it is still premature to expect either. He added, "Expectations for China's economic improvement will also be possible only after confirming the peak of the COVID-19 spread," and "The Chinese Lunar New Year holiday in January is a factor that could further amplify COVID-19 cases."

Lee Kyung-min, a researcher at Daishin Securities, said, "The KOSPI in January is likely to suffer from a triple burden," forecasting, "While fundamental concerns (economy, earnings, etc.) persist, expectations for interest rate cuts in the second half of the year will retreat, and on top of that, foreign selling, short selling buildup, and program selling will add supply pressure." He emphasized, "The market will pass the low point of the long-term downtrend during the first quarter. A short-term rebound from the sharp drop is possible, but risk management is still necessary."