[MarketING] Shallow Volatility, Not the Time to Sell

KOSPI Rises After 3 Days
Volatility Increases but Downside Rigidity Maintained

[Image source=Yonhap News]

The KOSPI, which had been wavering below the 2400 mark due to inflation concerns originating from the U.S. and tightening fears, rebounded after three days. Although it is undergoing adjustments due to revised expectations for monetary policy, experts advise against excessively reducing stock allocations, as volatility is expected to be less severe than last year.

KOSPI Rebounds After Three Days

As of 10:25 a.m. on the 28th, the KOSPI was up 27.31 points (1.14%) from the previous session, standing at 2429.95. The KOSDAQ rose 6.87 points (0.88%) to 787.17.

This is attributed to the influence of a rebound buying wave following an excessive drop in the U.S. stock market the previous day. On the 27th (local time) at the New York Stock Exchange (NYSE), the Dow Jones Industrial Average closed up 0.22%, the S&P 500 rose 0.31%, and the Nasdaq increased by 0.63% compared to the previous day.

Sangyoung Seo, a researcher at Mirae Asset Securities, said, "The U.S. stock market showed strength due to stable interest rates and news of a Brexit agreement, which led to a stronger euro and pound and a weaker dollar. This is expected to have a positive impact on the Korean stock market." He added, "The won-dollar exchange rate has fallen sharply thanks to the weaker dollar, raising expectations for won appreciation, which could positively influence foreign investor demand."

The easing of the rapid rise in the exchange rate is also supporting the stock market rebound. On this day, the won-dollar exchange rate opened at 1318.0 won, down 5.0 won from the previous day in the Seoul foreign exchange market. Ji-young Han, a researcher at Kiwoom Securities, explained, "Although the domestic stock market is expected to remain cautious ahead of the holiday on the 1st, it will likely show a rebound supported by the strong U.S. stock market and the easing of rapid interest rate hikes. The recent rapid rise in the won-dollar exchange rate, which had worsened foreign investor demand and put downward pressure on the domestic stock market, is likely to ease due to the weakening of the dollar and discussions on exchange rate stabilization measures by foreign exchange authorities, which will also positively affect the domestic stock market."

Volatility Less Severe Than Last Year, Favorable for Buying

Concerns about a prolonged tightening have increased, raising worries about the possibility of further sharp declines in the stock market undergoing adjustments.

One researcher analyzed, "It is true that the stock market is currently facing a difficult environment, being dependent on macro factors such as interest rates, the dollar, and the Federal Reserve (Fed). Because of this, many are wary of additional sharp declines, such as a downward breakout from the box range (around 2350 on the KOSPI basis)."

However, since the factors currently affecting the market are not new but rather existing negative factors, the market's downward rigidity is expected to be maintained. The researcher explained, "While it is a period requiring risk management, it is important to note that the current negative factors are not new but rather existing ones. Market participants have developed considerable resistance to these existing negatives. Although recent market sentiment and the perceived degree of stock price decline may have felt intense, it was mainly increased price volatility, and the market's downward rigidity remains intact."

Analysis suggests that this volatility will not be as deep as last year. Donggil Noh, a researcher at Shinhan Investment Corp., said, "The March market environment is a phase of reversing earlier monetary easing expectations, so the short-term pullback is expected to be shallower than last year." He added, "After the rally at the end of last year, the S&P 500 and KOSPI fell about 6% and 10% respectively from their 200-day moving averages, which is the expected volatility in this pullback."

Experts suggest that buying responses are more advantageous than excessively reducing stock allocations. Yonggu Kim, a researcher at Samsung Securities, said, "In March, the KOSPI is expected to show a neutral price trend testing the market's long-term trend line, the 200-day moving average (around 2410 on the converted index)." He added, "The Fed is likely to seek a balance between economic and inflation responses rather than pushing the real economy into recession through excessive tightening. Considering the simultaneous recovery of global supply and demand, the downward stabilization of inflation and interest rates, and the shift to a weaker U.S. dollar, holding stocks rather than selling off and buying rather than waiting are more advantageous." He further stated, "It is necessary to use the area below the 2400 level on the KOSPI as a final opportunity for market re-entry and portfolio restructuring."

The researcher also explained, "Although macro uncertainties such as the Fed and inflation are expected to persist until the March U.S. Federal Open Market Committee (FOMC), which will be another turning point for the stock market, the recent increase in stock price volatility has largely reflected these existing macro uncertainties. Therefore, it is appropriate to avoid excessive reduction of stock allocations at this point."