[MarketING] Four Days of Decline, When Will the Bargain Buying Begin?

Weakness Continues for Four Days, Interest in Buying the Dip Increases
Considering Increasing Holdings Below the 2100 Level

[Image source=Yonhap News]

[Asia Economy Reporter Song Hwajeong] The stock market has been on a decline for four consecutive days. Interest in buying at low prices is growing amid the continued downtrend. However, since market conditions remain challenging, caution is advised when buying at low prices. Experts suggest that increasing exposure could be considered if the KOSPI falls below the 2100 level.

Consider Increasing Exposure Below the 2100 Level

As of 10:20 AM on the 3rd, the KOSPI stood at 2187.53, down 38.14 points (1.71%) from the previous day. The KOSDAQ fell 8.64 points (1.29%) to 662.87. Both the KOSPI and KOSDAQ started the day higher but failed to maintain the upward momentum and soon turned downward. The KOSPI is trading below the 2200 mark, and the KOSDAQ is below 670.

Individual investors are buying alone, but their efforts are insufficient to reverse the index direction against selling by institutions and foreigners. Individuals net purchased 332.8 billion KRW on the day, while institutions and foreigners sold 279.2 billion KRW and 64.7 billion KRW, respectively.

Individuals have maintained a net buying streak for four consecutive trading days. After selling until the 27th of last month to avoid major shareholder capital gains tax, they switched to buying immediately after the major shareholder determination date passed. The recent price decline appears to have attracted bargain hunters.

However, given the significant uncertainties, caution is necessary when buying at low prices. Lee Kyungmin, a researcher at Daishin Securities, explained, "The basic strategy for Q1 this year should focus on strengthening defense and enhancing portfolio stability," adding, "Above 2200 points on the KOSPI, short-term trading should be avoided, and a defensive investment strategy such as maintaining or increasing cash holdings should be maintained." He continued, "While maintaining a conservative stance in the short term, a buying opportunity below 2100 points on the KOSPI is expected during Q1. However, since the process of confirming the bottom is likely to be somewhat rough, it is necessary to approach with phased buying."

Low Market Attractiveness Delays Timing for Index Betting

Considering Korea's risk premium and reduced relative attractiveness, the timing for index betting is expected to be delayed. According to Shinhan Investment Corp., Korea's sovereign default risk slightly increased in Q4 last year compared to the U.S., and Korea's risk premium also rose further. The KOSPI yield gap (the difference between expected stock investment returns and the 3-year government bond yield) stands at 5.1 percentage points, significantly below the average of 7.7 percentage points. This indicates a decline in the relative attractiveness of stocks compared to bonds. Labor Gil, a researcher at Shinhan Investment Corp., analyzed, "Given the current interest rate environment, the relative attractiveness of the stock market is low," adding, "In a monetary tightening environment, the timing for index betting will be delayed until earnings estimates improve."

If the index falls further, attention should be paid to oversold stocks. Researcher Noh said, "Since the decline was rapid, a technical rebound phase may appear," adding, "It is necessary to respond mainly to oversold sectors in the KOSPI range below 2150 points."