[MarketING] Rebound Buying and Stock Price Retracement

KOSPI Rebounds After 3 Days
Foreigners Turn 'Buy' in One Day

[Image source=Yonhap News]

[Asia Economy Reporter Song Hwajeong] The KOSPI rebounded this week as a counter-buying trend emerged following consecutive declines. While a retracement phenomenon is occurring in recently plummeted stocks, a retracement related to the sharp rise in January is also expected this month, highlighting the need to focus on stocks that have risen less during the rebound.

Counter-Buying Inflows Help KOSPI Recover to 2450 Level

As of 10:10 a.m. on the 1st, the KOSPI was at 2450.16, up 25.08 points (1.03%) from the previous day. The KOSDAQ rose 8.23 points (1.11%) to 748.72.

The rebound is interpreted as a result of counter-buying inflows following two consecutive days of over 1% declines. Individual investors have maintained buying for three consecutive days, and foreigners, who led the index decline the previous day, also turned to buying after just one day. Individuals are net buyers of 66.3 billion KRW, and foreigners are net buyers of 93.7 billion KRW.

Kim Seokhwan, a researcher at Mirae Asset Securities, said, "The domestic stock market widened its correction due to Samsung Electronics' earnings conference call the previous day, but optimistic expectations for global economic growth and rapid recovery of the Chinese economy will sustain foreigners' preference for risk assets. In this regard, the inflow of foreign capital and the stabilization of the won-dollar exchange rate today will be factors supporting the stock market rise."

Despite continued buying recently, the foreign ownership ratio of KOSPI remains low, so the intensity may weaken, but the net buying trend is expected to continue. The foreign ownership ratio of KOSPI is 30.8%, below the post-2020 average of 33.7% and the post-2020 average of 32.8%. Han Jiyoung, a researcher at Kiwoom Securities, analyzed, "Expectations for economic recovery centered on emerging markets are likely to lead, so the foreign buying trend since the beginning of the year will not abruptly reverse. In the short term, global funds may adjust their tempo, but in the medium term, the inflow of funds will continue."

Why Focus on Stocks That Rose Less in January Amid Price Retracement

A retracement phenomenon is occurring mainly in stocks that fell sharply the previous day. Samsung Electronics, which fell more than 3% the previous day, and SK Hynix, which showed a decline in the 2% range, are rebounding today. Samsung Electronics is up 1.64%, and SK Hynix is up 1.36% respectively.

Researcher Han said, "Today, a technical price retracement phenomenon will emerge following the sharp decline this week. Amid cautious sentiment ahead of the U.S. Federal Open Market Committee (FOMC) announcement on the 1st (local time), the stock market will digest individual earnings issues and develop a differentiated market by sector."

Just as a technical retracement appeared in stocks that recently fell sharply, a retracement phenomenon is also expected this month in stocks that rose sharply last month. Researcher Han explained, "The February stock market is expected to enter a phase where previous expectations and anxieties materialize, during which retracement of growth stocks and large-cap stocks that had strong price rebounds in January may occur."

Accordingly, there are many opinions emphasizing the need to pay attention to stocks that rose relatively less last month. Kang Daeseok, a researcher at Yuanta Securities, said, "From a short-term tactical perspective, it is necessary to focus on sectors that may be relatively free from profit-taking desires. These include sectors whose stock prices rose less during the strong rebound in January, still have room to rise compared to their peaks, have valuation attractiveness, or have valid expectations for earnings turnaround."