[MarketING] Rebound in Four Days... "Focus on Neglected Sectors"

KOSPI Rebounds After Four Days
Inflow of Bargain Buying Following Recent Decline
Need to Pay Attention to Neglected Themes and Sectors

[Asia Economy Reporter Song Hwajeong] The KOSPI rebounded after four days of decline. This is interpreted as a result of bargain hunting following the recent continuous drop. However, limited movement is expected as the U.S. inflation data release is imminent.

KOSPI rebounds after four days on institutional buying

As of 10:20 a.m. on the 14th, the KOSPI was at 2,464.09, up 11.39 points (0.46%) from the previous day. The KOSDAQ rose 2.69 points (0.35%) to 775.24. The KOSPI showed a strong gain of over 1% in early trading but the gains have narrowed.

The index rebounded due to bargain buying following three consecutive days of decline. In particular, institutions, which had been continuously selling, showed buying interest for the first time in a while, leading the index higher. Institutions are net buyers of 98.1 billion KRW in the KOSPI market. Kim Younghwan, a researcher at NH Investment & Securities, said, "There are many positive factors for the market in terms of supply and demand, such as foreign capital inflows into the Korean stock market driven by expectations of China's economic stimulus and standby funds from institutional investors who have not fully deployed their capital."

The rebound in the New York stock market the previous day, with all three major indices rising over 1% due to counterbuying, also appears to have influenced the market. On the 13th (local time) at the New York Stock Exchange (NYSE), the Dow Jones Industrial Average rose 1.11%, the S&P 500 increased 1.14%, and the Nasdaq rose 1.48%, all closing higher. Seo Jeonghoon, a researcher at Samsung Securities, analyzed, "Last night, the New York market rose due to counterbuying following two consecutive days of decline. As the interest rate rebound calmed down, tech stocks sensitive to this performed well. Although there were hawkish remarks from Federal Reserve (Fed) officials, the impact on the market was limited."

However, with the U.S. January Consumer Price Index (CPI) announcement scheduled for today, the upper limit of the index is expected to be constrained. Han Jiyoung, a researcher at Kiwoom Securities, said, "The market will start higher influenced by the strength of the U.S. stock market including the Nasdaq, but during the session, caution over the U.S. January CPI will limit the index's upside, resulting in a stock market driven by individual issues such as management disputes and shareholder returns."

Increased difficulty in sector selection... Attention needed on overlooked stocks

As the index shows sluggish movement, the difficulty of sector selection is increasing.

Labor Gil, a researcher at Shinhan Investment Corp., analyzed, "The inflow of passive foreign capital into the KOSPI is likely to slow down, and at the same time, the explanatory power of earnings for stock prices has weakened compared to the past as the downward revision of earnings estimates is nearing completion. In a situation where the index's upper and lower limits are constrained, portfolio strategy faces higher difficulty and importance than ever before." He added, "Currently, it is necessary to decide whether to focus on a decline in discount rates or on the possibility of upward revisions in earnings estimates. Also, with the index's upper limit constrained by valuation burdens, whether to bet on existing leading stocks or overlooked stocks can be a crucial turning point for relative returns."

There is an opinion that it is necessary to pay attention to overlooked stocks rather than following existing leading stocks. Researcher Noh said, "The Korean stock market has experienced rapid rotation without establishing clear leading stocks for over a year. Overlooked theme groups for more than three months have significantly underperformed the market, making them sensitive even to small positive news. From this perspective, it is worth considering a contrarian approach to stocks and themes related to renewable energy and healthcare."