[Weekly Market Outlook] Stock Market Expected to Continue Without Clear Direction

Q4 Earnings Announcement, February FOMC Caution
Fast Rotation Market... Recommendations: Nuclear Power, Defense, and Robot Stocks

[Asia Economy Reporter Lee Seon-ae] This week (16th-20th), the domestic stock market is expected to continue a stock-specific market trend, moving sideways without a clear direction. Although the easing of inflation concerns following the release of the US December Consumer Price Index (CPI) has spread risk asset preference sentiment, the market is likely to remain in a box range with theme and stock-specific trading due to the Q4 earnings shock and caution ahead of the US Federal Open Market Committee (FOMC) meeting scheduled for early February.

The securities industry expects the KOSPI to fluctuate between 2300 and 2420 this week. While the easing of inflation is a factor supporting stock price rises, caution regarding the FOMC and Q4 earnings announcements are downside risks. The FOMC meeting will be held from January 31 to February 1 (local time). Kim Young-hwan, a researcher at NH Investment & Securities, said, "This is a period where the momentum of falling inflation and the uncertainty ahead of the FOMC are conflicting," adding, "A theme and stock-specific market within a box range without a clear market direction is expected."

[Image source=Yonhap News]

Corporate earnings for Q4 last year are generally expected to be weak. Since Samsung Electronics announced disappointing results on the 6th, profit forecasts for domestic companies have sharply declined. The consensus operating profit for 188 KOSPI-listed companies in Q4 last year is estimated at 31.5 trillion KRW, down 28.3% compared to the previous year. Researcher Kim Young-hwan noted, "With recent downward revisions in earnings forecasts, the valuation burden on the KOSPI is not insignificant and could act as a factor limiting the upside."

Attention is also focused on major economic indicators released in the US, China, and Japan. On the 16th, Japan's December Producer Price Index will be released. On the 17th, China's Q4 Gross Domestic Product (GDP), December industrial production, and retail sales will be announced. On the 18th, US December industrial production and retail sales data are scheduled for release. Market participants are expected to pay particular attention to the Bank of Japan (BOJ) monetary policy meeting held over two days starting on the 17th. Japan, which has not followed the monetary tightening trend of major central banks, is attempting a late policy shift. Park Seung-jin, a researcher at Hana Securities, said, "Japan's 10-year bond yield has reached the new upper limit of the yield control target at 0.50%, and there is room for further increase," adding, "This meeting may increase signals regarding the evaluation of existing easing policies and additional measures."

Interest is also focused on the actions of the People's Bank of China, the Chinese central bank. Since China has announced strong stimulus measures to support domestic demand, there is speculation that the Loan Prime Rate (LPR) will be cut. Kim Kyung-hwan, a researcher at Hana Securities, analyzed, "We expect a rate cut and annual freeze in the first quarter," adding, "Since the rate cut target is to stimulate household loans and housing demand, a cut in the 5-year LPR is likely."

The 'quarantine conflict' that arose after the Chinese government suspended short-term visa issuance in response to the Korean government's strengthened quarantine measures for arrivals from China is also cited as a variable. Shin Seung-jin, a researcher at Samsung Securities, said, "With the Chinese Lunar New Year holiday approaching, a rapid increase in confirmed cases and quarantine control of arrivals is likely to continue for the time being," adding, "While the medium- to long-term direction of Chinese consumer stocks and cyclical stocks is upward, short-term volatility must be tolerated."

Experts advised considering a stock-specific market and responding accordingly, as both the upper and lower limits of the stock market are limited. Given the rapid sector rotation recently, the importance of selecting new themes is increasing. Researcher Kim said, "It is necessary to pre-purchase stocks in sectors considered promising themes and reduce weights during rises," adding, "Attention should be paid to policy themes such as media and content, overseas orders (overseas construction, defense, nuclear power), and technology sectors like artificial intelligence and robotics."

Additionally, there was a caution against chasing rising stocks in the recent market trend. There is also an opinion to focus on value stocks with low valuations. Since the beginning of the year, value stocks have recorded higher returns than growth stocks, and this trend is expected to continue for some time. Yeom Dong-chan, a researcher at Korea Investment & Securities, explained, "Considering the Q4 earnings uncertainty, value stocks can be an excellent short-term alternative," adding, "Among companies with low valuations, those that have received relatively less attention should be watched as stocks of interest." Park So-yeon, a researcher at Shin Young Securities, emphasized, "In an environment where inflation is becoming entrenched, interest rates are unlikely to fall easily, so bonds, dividend stocks, and value stocks should be well balanced in portfolio management."