[Weekly Market Outlook] Testing Support at 2400 Level... Focus on US October CPI

The stock market this week (November 13-17) is expected to test the support level around 2400, focusing on U.S. inflation indicators.

Last week, the KOSPI rose 1.74%, and the KOSDAQ increased by 0.93%. Following the full ban on short selling, the KOSPI surged more than 5% on the 6th, quickly reclaiming the 2500 level, and the KOSDAQ jumped over 7%, reaching the threshold of 840. However, both indices later declined, giving back most of their gains.

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Choi Yoo-jun, a researcher at Shinhan Investment Corp., analyzed, "At the end of last week, the authorities unexpectedly announced a short selling ban, and buying interest centered on secondary battery stocks caused a sharp rise in stock prices, with the KOSPI briefly recovering the 2500 level." He added, "After the rapid surge, a battle to stabilize around the 2400 level is ongoing amid a dominant cautious stance and speed adjustment."

The impact of the short selling ban appears to weaken over time. Researcher Choi said, "While the ban blocked one side of the selling supply, causing a price rebound due to supply and demand, its influence seems to diminish as time passes." He explained, "The decline in interest rates and oil prices has acted as a common positive factor for global stock markets, and short selling bans have already been applied to stocks excluding the KOSPI 200 and KOSDAQ 150."

Park Seung-young, a researcher at Hanwha Investment & Securities, stated, "The influence of short selling is exaggerated, and the effect of the ban is considered to have ended." He explained, "The effect of the short selling ban was partly mistaken for the effect of a base rate cut. During financial crises and the COVID-19 crisis, not only was the short selling ban implemented, but major central banks also cut base rates, and governments increased fiscal spending."

A key variable determining short-term market fluctuations is the U.S. October Consumer Price Index (CPI) to be released on the 14th. According to Bloomberg, the October CPI is expected to slow significantly to 0.1% month-over-month and 3.3% year-over-year, compared to September's 0.4% month-over-month and 3.7% year-over-year. Lee Kyung-min, a researcher at Daishin Securities, said, "Especially important is the core CPI, excluding volatile energy and food prices, which is currently expected to be 0.3% month-over-month and 4.1% year-over-year, showing stagnation compared to September." He added, "The October core CPI is the first figure released after the base effect ends. If there is no inflation rebound despite the disappearance of the base effect, the market will feel relief. However, if the core CPI rebounds contrary to expectations, short-term volatility expansion will be inevitable."

Fundamentals are expected to become more important. Kim Young-hwan, a researcher at NH Investment & Securities, said, "It is difficult to expect a rise driven by valuation expansion in a short period, so fundamentals will be key." He added, "Fortunately, during the Q3 earnings season this year, the 2024 KOSPI sales and profit forecasts showed an upward trend, and the U.S. year-end shopping season after Black Friday is expected to act as a positive momentum for Korean export stocks." NH Investment & Securities projected the KOSPI range this week to be between 2380 and 2500.

Researcher Park Seung-young said, "From now on, it is important whether corporate earnings improve." He added, "Since October, individual stocks have shown mixed movements, which I believe was the process of reflecting Q3 earnings in stock prices." He continued, "To summarize the November stock market so far, it was a process of justifying the price rises caused by supply and demand with earnings. Market volatility is expected to subside in the remaining period."

Events to watch this week include the U.S. October CPI on the 14th, followed by China's fixed asset investment, industrial production, and retail sales, U.S. October Producer Price Index (PPI), and U.S. October retail sales on the 15th, and China's October housing prices and U.S. October industrial production on the 16th. Researcher Choi Yoo-jun said, "Along with the U.S. CPI, China's October coincident indicators released on the 15th are expected to determine the stock market direction this week." He added, "Currently, the KOSPI is engaged in a battle around the 38.2% retracement level between the August high and October low. If the indicators disappoint, technical support will be confirmed at the 23.6% retracement level due to the short selling ban on large-cap stocks."