[MarketING] Continued Stock-Specific Market Amid Persistent Uncertainty

KOSPI Gains for 3rd Day... Limited Increase
Recent Market Shows Strong Start but Weak Finish Pattern

The KOSPI has continued a slight upward trend for the third consecutive day. Due to ongoing uncertainties such as the US debt ceiling negotiations and concerns over economic slowdown, the extent of the gains remains limited. It is expected that a stock market driven by individual issues will continue. Additionally, since the recent market has shown a pattern of strong start and weak finish, it will be necessary to observe whether the strength can be maintained until the close.

KOSPI rises for 3rd day... KOSDAQ strong for 2nd day

As of 1:15 PM on the 17th, the KOSPI is up 14.51 points (0.59%) from the previous day, standing at 2494.75. The KOSDAQ has risen 13.15 points (1.61%) to 829.90.

The KOSPI has maintained its upward momentum for the third day, but the gains remain limited amid expanding uncertainties from the US. The US stock market closed lower the previous day due to weak retail sales and failure in debt ceiling negotiations. On the 16th (local time) at the New York Stock Exchange (NYSE), the Dow Jones Industrial Average fell 1.01%, the S&P 500 dropped 0.64%, and the Nasdaq declined 0.18% compared to the previous day.

According to the US Department of Commerce, retail sales in April rebounded by 0.4% month-over-month but fell short of the market expectation of 0.7%. Industrial production in April turned positive with a 0.5% increase, improving from the previously reported flat figure and exceeding the expected 0.1% decline.

Seosangyoung, a researcher at Mirae Asset Securities, analyzed, "Retail sales increased by 1.6% year-over-year, but considering the Consumer Price Index (CPI) is 4.6%, this is a much lower level, suggesting that concerns over economic slowdown are holding back consumption." He added, "Although industrial production improved, excluding automobiles, the figure only rose by 0.4%, indicating that overall real economy indicators show that consumer and corporate sentiment is weakening amid high inflation and economic contraction." He further noted, "However, since the indicators are not worse than expected, the possibility of a hard landing has significantly diminished."

US President Joe Biden and congressional leaders failed to reach an agreement on the debt ceiling in their second meeting. However, House Speaker Kevin McCarthy mentioned that a deal could be reached by the weekend, and President Biden agreed to shorten his schedule at the upcoming Group of Seven (G7) summit later this week to focus on negotiations.

Researcher Seo stated, "Anxiety related to debt ceiling negotiations is expected to persist until the weekend, but there may be expectations for some agreement to emerge at the third meeting after the weekend." He added, "However, even if an agreement is reached, if spending cuts are passed, it would be a short-term positive but it is important to note the possibility of a shift to economic slowdown issues in the medium term."

For the stock market to find direction, it seems necessary for the current sources of anxiety affecting the market to be somewhat resolved. Han Jiyoung, a researcher at Kiwoom Securities, said, "To break out of the phase where the market shows no clear direction, it appears necessary to digest concerns about recession, Federal Reserve (Fed) tightening, and the debt ceiling issue."

Continued strong start and weak finish pattern amid stock-specific market

Amid these uncertainties causing the index to show sluggish movement, a stock market driven by individual issues is continuing.

On this day, the KOSDAQ showed a rare early session gain of over 1%, attributed to strength in entertainment stocks. YG Entertainment is up 8.71%, SM Entertainment 4.12%, and JYP Ent. 3.73%. JYP Ent. surged more than 20% the previous day on strong first-quarter earnings and has continued its rise for four consecutive days. SM Entertainment and YG Entertainment also showed significant gains following increases of 6% and 9% respectively the previous day.

Researcher Han said, "Due to persistent US-origin uncertainties such as slowing US consumer spending and failed debt ceiling negotiations, the index is expected to show limited movement while a stock-specific market unfolds again." He added, "As volatility in secondary battery stocks has increased recently, foreign investors have been exiting that sector, with inflows moving into large-cap semiconductor stocks and entertainment stocks among mid- and small-cap stocks."

It remains to be seen whether this upward momentum will continue until the close. This is because the recent market has shown a pattern of strong start and weak finish. Choi Yujun, a researcher at Shinhan Investment Corp., analyzed, "The domestic market also started higher the previous day but the strong start and weak finish pattern continued, reducing the gains." He added, "Out of 10 trading days this month, 6 showed this strong start and weak finish pattern, and even on the 4 days with a weak start and strong finish pattern, the strength of the gains was weak."