[Weekly Market Outlook] Cautious Stance Expected to Strengthen Ahead of the Holiday

The stock market this week (September 25-29) is expected to remain cautious ahead of the Chuseok holiday. Since indicators released during the holiday period will be reflected in the market afterward, the sentiment to observe and act based on these data is likely to strengthen.

Last week, the KOSPI fell by 3.58%, and the KOSDAQ dropped by 4.64%. The KOSDAQ ended the week with a decline for six consecutive trading days.

[Image source=Yonhap News]

Concerns over inflation driven by high oil prices and the hawkish interpretation (preference for monetary tightening) of the September U.S. Federal Open Market Committee (FOMC) results increased downward pressure on stock prices. Choi Yoo-jun, a researcher at Shinhan Investment Corp., analyzed, "International oil prices, a strong link to inflation, reached a new high, hitting $90 per barrel. Combined with concerns about inflation stimulation and anticipation of monetary events, a defensive stance continued in the stock market. Although the FOMC kept interest rates unchanged, the outlook for next year's rates was raised, leading to a more hawkish interpretation than expected. The rise in exchange rates and interest rates pressured stock prices, and foreigners sold KOSPI 200 futures for five consecutive days."

This week is expected to continue the cautious stance ahead of the Chuseok holiday. Researcher Choi said, "Korea will enter the Chuseok holiday from the 28th to October 3rd, and China will have its National Day holiday from the 29th to October 6th. Since these holidays fall at the end and beginning of the month, events announced during this period will be reflected after the holidays, which may strengthen the sentiment to avoid uncertainty." He added, "The capital concentration due to the public offering subscription of Doosan Robotics, a major IPO, and the increased demand for funds due to the quarter-end and holiday season are also factors restricting capital inflow into the stock market."

As the cautious sentiment strengthens, the market is expected to show vulnerability. Kim Young-hwan, a researcher at NH Investment & Securities, said, "With important events ahead such as Korea's export-import trends, the U.S. September ISM manufacturing index, and the Q3 earnings season, and with the market closed for four trading days, investors are likely to remain cautious. Externally, the aftereffects of the September FOMC may continue. However, considering that the market has relieved price burdens and is entering the earnings season, the overall outlook for October is likely positive." NH Investment & Securities projected the KOSPI range this week to be between 2450 and 2570 points.

Confirming support near the previous low around 2480 points is expected to be important. Researcher Choi explained, "Since the Contingarden incident in August, the KOSPI has fallen below the 120-day moving average (2560 points), adding technical pressure, and the importance of another key level, the 200-day moving average (2494 points), has increased. This corresponds to the August low and is close to the price-to-book ratio (PBR) of 0.9 times (2480 points), which confirmed support this year in terms of valuation. The stock price currently has only about 1.4% room left, so a temporary dip below is possible. However, if rising oil prices and the hawkish FOMC do not damage the economic outlook, a recovery can be expected. Due to ongoing discount rate pressure limiting the upside, a box range market centered around the 120-day moving average is likely to continue," he added.

There is a low likelihood that the KOSPI will enter a downtrend. Lee Kyung-min, a researcher at Daishin Securities, said, "Although the more hawkish stance of the U.S. Federal Reserve than expected will inevitably cause short-term shocks in global financial markets, the possibility of the KOSPI entering a downtrend is low. The economic momentum, which was absent during the rate hike phase, is strengthening, and the fundamental reasons for additional rate hikes and sustained high rates are solid employment and a robust service sector."

Key events to watch this week include the U.S. Conference Board Consumer Confidence Index for September on the 26th, U.S. August durable goods orders on the 27th, the final U.S. Q2 GDP on the 28th, and on the 29th, China's September Caixin Purchasing Managers' Index (PMI) and the U.S. August Personal Consumption Expenditures (PCE) Price Index are scheduled to be released.