[Weekly Market Outlook] Will KOSPI Break 2600... Samsung Electronics '70,000 Won' Tailwind

Increase in Trading Volume Also Needed to Break KOSPI's Previous Highs

This week, the domestic stock market is expected to attempt to surpass the KOSPI 2600 level, supported by optimism over an improvement in the semiconductor industry. Samsung Electronics has revitalized the KOSPI by reaching the '70,000 won stock' mark for the first time in about 1 year and 2 months. If investor sentiment improves following the release of domestic and international real economy indicators this week, it is anticipated that the previous high will be broken.

[Image source=Yonhap News]

On the 29th, domestic securities firms forecast that the KOSPI will attempt to break through the 2600 level this week, buoyed by strength in semiconductors. Semiconductors led the domestic stock market's rise last week. U.S. semiconductor company Nvidia posted an earnings surprise in Q1 and issued a Q2 sales forecast that exceeded market expectations by 50%, driving semiconductor gains. In particular, the excitement surrounding generative artificial intelligence (AI) boosted investor sentiment. The domestic market also experienced a positive wave. On the 26th, Samsung Electronics closed at 70,300 won, up 1,500 won (2.18%). This is the first time since March 29 last year (70,200 won) that Samsung Electronics' closing price has exceeded 70,000 won in about 1 year and 2 months. SK Hynix also surged 5.51% to close at 109,200 won. During the session, it rose to 110,500 won, setting a new 52-week high. It was the first time since May 25 last year that the price exceeded 110,000 won during trading.

Kim Young-hwan, a researcher at NH Investment & Securities, explained, "The improving demand for GPUs (graphics processing units) for AI model development and cloud demand is positive for domestic memory semiconductor companies. Additionally, the Chinese government's announcement of a ban on Micron's product sales within China has raised expectations that demand for Korean semiconductors in China could increase in the short term." He added, "Following production cuts by memory semiconductor companies, the potential expansion of semiconductor demand is a factor that raises expectations for semiconductor earnings improvement in the second half of the year, which will positively impact semiconductor stock prices." NH Investment & Securities projected the KOSPI range for this week to be between 2490 and 2620 points.

Various indicator releases this week are also in focus. Announcements of real economy indicators such as South Korea's May exports and major countries' PMI (Purchasing Managers' Index) are scheduled. On the 31st, China's May manufacturing and non-manufacturing PMI will be released. On June 1, South Korea's export-import and trade balance data will be published. On the same day, the U.S. Institute for Supply Management (ISM) will release the May manufacturing index. The market expects the ISM manufacturing index to slightly decline from the previous month and remain below the baseline (50).

Choi Yoo-jun, a researcher at Shinhan Investment Corp., said, "The KOSPI was led by semiconductors for a week, rising for seven consecutive days and attempting to break the previous high, but external factors are exerting downward pressure." He cited the negative watch designation by U.S. credit rating agency Fitch on the U.S. sovereign credit rating and the burden of China's stock price decline as downward pressures. Accordingly, he diagnosed that the KOSPI needs to absorb external variables to break through the previous high.

Researcher Choi added, "Exports from May 1 to 20 decreased by 16.1% year-on-year, continuing a double-digit decline, and the finalized May figures are expected to be similar, which will affect expectations for Q2 earnings. The manufacturing PMIs of the U.S., Eurozone, and China all continue to show sluggish trends, and it is necessary to confirm the slowdown in service sector prices through price indicators among detailed items."

U.S. employment data for May is an indicator that could influence the June Federal Open Market Committee (FOMC) meeting. Researcher Choi said, "The May minutes showed reliance on future economic indicators and were assessed as more hawkish than expected. April employment was better than market expectations in both nonfarm payrolls and unemployment rate, limiting the possibility of a sharp economic slowdown. May figures are expected to show a slower trend than the previous month, and if they come out as a surprise, the market could interpret it as an upward factor."

Meanwhile, an analysis suggested that an increase in trading volume and value is necessary for the KOSPI to break through the previous high. Researcher Choi analyzed, "The ratio of stock market capitalization to market liquidity is only at the lower end of the box range seen from 2011 to 2016. If investor sentiment improves, there is potential for stronger price momentum due to capital inflows." He continued, "If the index continues to rise, warmth could spread to other sectors, but until export indicators improve, semiconductors are likely to maintain their dominance. In sectors excluding semiconductors, a differentiated approach is needed, and attention should be paid to shipbuilding and machinery within order-driven industries where individual momentum is at play."