[Weekly Market Outlook] Index Direction Becomes Unclear Amid External Uncertainties... Extended Themed Stock Market Trend

The stock market this week (August 28 to September 1) is expected to see the theme stock trend continue amid unclear index direction.

Last week, the KOSPI rose by 0.58%, and the KOSDAQ increased by 2.51%. The KOSPI showed a technical rebound this week after a prolonged decline, and on the 24th, it surged mainly in tech stocks but gave back some gains with a pullback on the 25th. The KOSDAQ had a larger gain compared to the KOSPI but failed to recover the 900 level.

[Image source=Yonhap News]

With external uncertainties making the index direction unclear, the theme stock trend persisted. Large-cap stocks showed a sluggish performance, while mid-caps with a high proportion of sensitive stocks underperformed. Since the beginning of this month, the relative strength of small-cap stocks compared to the KOSPI has significantly improved, and their trading volume share has also increased. Yoojun Choi, a researcher at Shinhan Investment Corp., said, "With individual investors maintaining their preference for stocks, the high interest rate level raises the required rate of return, resulting in a 'high risk, high return' trading pattern," adding, "Unless there is a catalyst for a trend reversal in the index or an overwhelming leading stock emerges, the theme stock market is likely to continue for a while."

There are opinions that the index's upside potential is limited due to high interest rates. Younghwan Kim, a researcher at NH Investment & Securities, said, "In the short term, the high interest rates will limit the stock index's upside potential," and added, "A stock-specific market driven by individual issues is expected." NH Investment & Securities projected the KOSPI range for this week to be between 2490 and 2610 points.

At the Jackson Hole meeting, which attracted market attention, Jerome Powell, Chair of the U.S. Federal Reserve (Fed), maintained a hawkish stance but was interpreted as reiterating previous positions, leading to relief in the New York stock market. On the 25th (local time) at the New York Stock Exchange (NYSE), the Dow Jones Industrial Average rose 0.73%, the S&P 500 increased 0.67%, and the Nasdaq gained 0.94% compared to the previous session. Namjoong Moon, a researcher at Daishin Securities, said, "As fears over domestic and international negative factors that have suppressed global markets and the KOSPI ease, the global financial market is increasingly likely to pass a turning point simultaneously," but added, "However, with the end and beginning of the month approaching, fluctuations based on economic data results are inevitable, so we recommend a strategy to increase exposure by utilizing volatility around the 2500 level."

Key events to watch this week include the U.S. Conference Board Consumer Confidence Index for August on the 29th, U.S. Q2 Gross Domestic Product (GDP) on the 30th, and South Korea’s July Industrial Production and U.S. July Personal Consumption Expenditures (PCE) Price Index on the 31st. On September 1, China’s August Caixin Manufacturing Purchasing Managers’ Index (PMI), the U.S. August Employment Report, and the U.S. August Institute for Supply Management (ISM) Manufacturing data are scheduled to be released.