[Weekly Market Outlook] Focus on US-China Economy... 2600 'Not Yet' & Semiconductor 'Investment'

US Economy as a 'Stock Market Downside Factor'
Semiconductor Industry and China's Economic Stimulus 'In Focus'

The domestic stock market is expected to take a brief pause this week (17th-21st). The KOSPI, which has been on a continuous upward trend after surpassing 2500, is facing a technical resistance level, and the prevailing view is that breaking through 2600 is still unlikely. Depending on various indicators that assess the economic conditions of the U.S. and China, the market is expected to trade within a range.

[Image source=Yonhap News]

On the 16th, the securities industry predicted that the KOSPI would encounter technical resistance after its relentless rise last week. The upper limit of the expected band is generally around 2590. Choi Yoo-jun, a researcher at Shinhan Financial Investment, said, "The index is currently close to a technical resistance zone, and as secondary batteries take a breather, whether the index breaks through the resistance depends on semiconductors," adding, "The tug-of-war between expectations for a recovery in the real economy and the semiconductor industry will determine whether the resistance is broken."

A key factor influencing the stock market this week is the economic trends in the U.S. and China. Major economic indicators scheduled for release include U.S. retail sales and industrial production for March on the 14th. Since the Federal Open Market Committee (FOMC) minutes included references to a recession, the market is expected to focus heavily on the strength of U.S. demand. Considering the recent slowdown in U.S. retail sales, there is a high possibility that this will exert some downward pressure on the stock market.

The ongoing concerns about a slowdown in the U.S. economy are factors that could suppress the index's rise. If the economic outlook indicators for the U.S., including manufacturing and service sector data released this week, confirm a slowdown, a short-term correction may occur. Although no major domestic companies are scheduled to report earnings this week, major U.S. companies will enter the full earnings season. Financial firms such as Goldman Sachs, Morgan Stanley, and Bank of America will be the first to announce their results. Park Hee-chan, a researcher at Mirae Asset Securities, noted, "As the earnings season intensifies, the visibility of earnings or earnings forecasts is not favorable at the moment," adding, "It is more likely that new momentum to sustain a relief rally in the stock market will be limited to certain sectors and themes."

Kim Young-hwan, a researcher at NH Investment & Securities, said, "The U.S. economic data scheduled for release this week may exert some downward pressure on the stock market," but he also explained, "Considering positive factors such as China's economic stimulus and expectations for a turnaround in Korean earnings, it is more likely to be a short-term correction after a breakout from the trading range rather than a trend reversal."

Expectations for China's economic stimulus and reopening (resumption of economic activities) are seen as positive factors. The outlook can be gauged through China's Q1 GDP and March retail sales, industrial production, and fixed asset investment data to be released on the 18th. Earlier, Bloomberg reported that China is pushing for infrastructure investments worth 12.2 trillion yuan to stimulate the economy. Daol Investment & Securities noted that although global recession concerns are prominent, China is showing differentiated economic trends, which could serve as an alternative for the market to find opportunities.

Experts diagnosed that while secondary battery-related stocks are taking a breather after a sharp rise, for the index to break through the resistance, the semiconductor sector's upward momentum must stand out. Researcher Choi Yoo-jun said, "Whether the index breaks through the technical resistance depends on the sustainability of semiconductor gains," adding, "It is encouraging that many sectors are rebounding, but the index's movement will heavily rely on semiconductors as the volatility of secondary battery stocks increases." Nam Dae-jong, a researcher at eBest Investment & Securities, said, "Recently, mid- and small-cap stocks have seen larger price increases than large-cap stocks, which has increased valuation pressure," adding, "In the short term, large-cap stocks like Samsung Electronics and SK Hynix could be investment alternatives." Han Jae-hyuk, a researcher at Hana Securities, predicted that secondary battery stocks will cause market volatility again this week. He advised, "Profit-taking, stop-losses, and buying demand have combined to create high volatility, and since volatility is expected across the entire market rather than just one sector, short-term investments are recommended."