[MarketING] KOSPI Rises to 2620 Level as Recession Concerns Ease

KOSPI Rises for 3rd Day, Reaches 2620 Level
KOSDAQ Also Up for 6 Consecutive Days

The KOSPI continued its upward trend for the third consecutive day, rising to the 2620 level in early trading. This is interpreted as being positively influenced by concerns over an economic recession and the strengthening of the Korean won. With the KOSPI settling above the 2600 mark, meeting the conditions for entering a bull market, corporate profit improvements are expected to support this trend.

KOSPI rises for the third day... KOSDAQ up for the sixth day

As of 10:25 a.m. on the 7th, the KOSPI was at 2621.72, up 6.31 points (0.24%) from the previous day. The KOSDAQ rose 4.95 points (0.57%) to 875.23.

[Image source=Yonhap News]

This bullish trend is attributed to the U.S. stock market closing higher the previous day amid easing recession concerns. On the 6th (local time) at the New York Stock Exchange (NYSE), the Dow Jones Industrial Average rose 0.03%, the S&P 500 increased 0.24%, and the Nasdaq rose 0.36% compared to the previous day.

Han Ji-young, a researcher at Kiwoom Securities, explained, "Despite the weak May ISM Services Index and profit-taking sales of Nvidia shares, the U.S. stock market closed higher due to the World Bank's upward revision of U.S. economic growth, expectations of the Federal Reserve (Fed) holding interest rates steady, and the possibility of a soft economic landing."

The U.S. May ISM Services Index recorded 50.3, exceeding the baseline but falling short of both the forecast (52.2) and the previous month’s figure (51.9). The employment index dropped from 50.8 in the previous month to 49.2.

Seo Sang-young, a researcher at Mirae Asset Securities, said, "As market attention shifts to the economy and Fed policy, recent economic indicators show positive headline numbers, but sectors related to manufacturing production are weak, indicating that detailed components are not very favorable. These results increase the possibility of an economic slowdown, but contrary to concerns, the chance of a hard landing is limited. Even if profit-taking sales occur, their scope is limited and confined to certain stocks that have shown concentration, rather than spreading across the entire market."

Meanwhile, the World Bank (WB) forecasted in its global economic outlook report that the world economy will grow by 2.1% this year, down 1 percentage point from last year. This is 0.4 percentage points higher than the WB’s earlier forecast of 1.7% growth for this year. The U.S. growth rate for this year was revised upward to 1.1%, an increase of 0.6 percentage points. However, the WB lowered the global growth forecast for next year from 2.7% in January to 2.4%.

Goldman Sachs contributed to easing recession concerns by lowering the probability of a U.S. recession within the next year from 35% to 25%. Goldman Sachs explained that bipartisan budget agreements will slightly reduce spending over the next two years, maintaining an overall neutral fiscal impact.

The strengthening trend of the Korean won is also positive for stock prices. On this day, the won-dollar exchange rate opened at 1299 won, down 9.1 won from the previous trading day in the Seoul foreign exchange market. The won-dollar exchange rate falling below 1300 won is the first time in over two months since April 14. Researcher Seo said, "The clear trend of won appreciation, including the decline in the won-dollar exchange rate, can positively affect foreign investor demand, which is favorable. The WB’s upward revision of the economic growth forecast, supported by stronger-than-expected recovery this year, is also positive because it suggests that this year’s weak exports may improve, which is expected to positively impact corporate earnings."

Conditions for KOSPI Bull Market Entry Met

With the KOSPI settling above the 2600 level, interest in entering a bull market is growing. The KOSPI has already met the conditions for entering a bull market.

Kang Dae-seok, a researcher at Yuanta Securities, said, "Another significance of the KOSPI breaking through the 2600 level is the entry into a bull market. As of September’s closing low of 2155 points, the KOSPI has risen 20.7% as of the 2nd, satisfying the so-called bull market criterion of a 20% rise from the closing low." Including intraday lows, it has risen about 22% from the 52-week low.

The reliability of entering a bull market depends on corporate earnings, according to analysis. Researcher Kang said, "From a time series perspective, there were phases like late 2017 to early 2018 when the market entered a bull market with a 20% rise from the low but ended weakly. Unlike then, the current situation is viewed as a bottom-up (passing the bottom) rather than a peak-out (passing the peak) of earnings. Optimism about future earnings forecasts in the domestic stock market is gradually spreading, and the turnaround in corporate profits can ultimately increase confidence in the stock index’s entry into a bull market."