[Weekly Market Outlook] Sideways Market Expected for a While... Increasing Influence of Individual Factors

The stock market this week (August 14-18) is expected to continue in a box range.

Last week, the KOSPI fell by 0.44%. The KOSDAQ dropped by 0.68%. The market showed sluggish movement due to the aftermath of the US credit rating downgrade and the release of US inflation data. The KOSPI rebounded by more than 1% on the 9th, marking a recovery after six days, but then declined for two consecutive days, closing the week below the 2600 level. Meanwhile, the KOSDAQ recovered the 910 level after rising for three consecutive days. Although the KOSDAQ rose for three days in a row recently, its decline was larger than that of the KOSPI.

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Choi Yujun, a researcher at Shinhan Investment Corp., analyzed, "The issue of the US credit rating downgrade has been digested, but large-scale government bond auctions and continued oil price increases are putting upward pressure on interest rates, limiting the upper bound of the index. Also, China's July export-import and inflation data were weaker than expected, which is weighing on stock prices."

It is expected that the box range market will continue as there is not much room for stock prices to rise in the near term. Na Jeonghwan, a researcher at NH Investment & Securities, said, "In a period where US-China conflicts arise in advanced industries and concerns about rising US inflation remain, along with interest rate increases, the potential for stock price gains is limited for the time being. At the same time, the KOSPI's 12-month forward price-to-earnings ratio (PER) is below 12, which supports the downside of the stock index. Ultimately, in a period where US Treasury yields rise and discount rates increase, stock prices are likely to move within a box range." NH Investment & Securities has set the expected KOSPI band for this week at 2530 to 2660 points.

Researcher Choi also said, "Interest rate pressure and concerns about China are blocking the upper bound of the KOSPI, and with the earnings season wrapping up, the pace of upward revisions to earnings estimates has slowed. Therefore, the KOSPI is likely to continue its box range movement for the time being."

The influence of individual factors is expanding, leading to a market dominated by individual stocks. Researcher Choi analyzed, "As the price movement of large-cap stocks slows down, a theme stock market continues. The speed at which factors are reflected in stock prices is fast, their influence is strong, and a concentration phenomenon is reappearing." He added, "This week, as interest rates determine the direction and style of stock prices and foreign demand weakens, a market based on individual stock demand from retail investors is expected to develop."

There is an opinion that easing upward pressure on interest rates is necessary for stock price increases. Researcher Na said, "Rather than an overall rise in stock prices, differentiation among stocks and sectors is expected. When US Treasury yields stabilize downward or the pace of earnings improvement accelerates, momentum for stock price increases will expand."

Events to watch this week include China's July real economy indicators on the 15th, US July retail sales and UK July consumer price index (CPI) on the 16th, and the release of the US Federal Open Market Committee (FOMC) minutes on the 17th. US July industrial production will also be announced on the same day.