[Weekly Market Outlook] Year-End Stock Market Rally Limited... Volatility Decreases Due to Capital Gains Tax Relief

Expecting Box Range Movement Amid Quiet Trading
Year-End Volatility to Decrease Due to Relaxed Major Shareholder Capital Gains Tax Criteria

This week (December 26-28), the stock market is expected to see light trading due to only three trading days, with volatility projected to decrease somewhat compared to the past.

[Image source=Yonhap News]

Last week, the KOSPI rose by 1.4% and the KOSDAQ by 1.95%. The KOSPI maintained its upward momentum early in the week, recovering the 2600 level for the first time in three months, but after reaching 2600, it showed signs of slowing down and ended the week without holding above 2600. Choi Yoo-jun, a researcher at Shinhan Investment Corp., analyzed, "The December U.S. Federal Open Market Committee (FOMC) reflected a dovish shift and increased chances of a soft landing, which sustained the upward trend. The KOSDAQ’s faster rise was due to a rapid decline in interest rates easing discount rate burdens, along with the visible relaxation of major shareholder capital gains tax criteria."

This week, a slowdown in momentum is expected amid light trading. Researcher Choi said, "This week is the last trading week of the year and includes the Christmas holiday, so there are few events likely to impact the market. Trading is expected to be quiet because there are only three trading days and the ex-dividend date is on the 27th, marking a quarterly turning point as the year changes." He added, "The rapid rise driven by recent positive sentiment in the stock market could act as a partial profit-taking factor, so a slowdown is possible as the market reflects expectations for next year."

There is a forecast for a box range movement until the end of the year. Lee Kyung-min, a researcher at Daishin Securities, said, "Attempts to rebound may continue until year-end, but additional rebound momentum will be limited. Until the end of the year, price adjustments are expected to be moderate within the 2550-2620 range. It is advisable to refrain from index plays and focus on sector and stock trading until year-end."

The relaxation of major shareholder capital gains tax criteria is expected to somewhat ease year-end volatility compared to previous years. Kim Young-hwan, a researcher at NH Investment & Securities, explained, "Generally, the last week of the year is a period of increased stock market volatility, but this year’s last week is likely to see reduced volatility compared to the past due to institutional changes such as improvements in dividend procedures (including changes in dividend base dates for some companies) and the easing of major shareholder capital gains tax criteria." NH Investment & Securities has set the expected KOSPI band for this week at 2530-2650.

The relaxation of capital gains tax criteria for major shareholders is also expected to reduce the burden of individual selling pressure. Researcher Choi analyzed, "This year, the high preference and sharp rise in secondary battery and semiconductor small- and mid-cap value chain stocks have eased the burden on stock prices. Since September, small- and mid-cap stocks and the KOSDAQ have underperformed large caps, but the easing of discount rate burdens and the relaxation of major shareholder criteria will improve supply-demand conditions and contribute to relative strength improvement."

Key schedules for this week include the Christmas holidays on December 25 in Korea and the U.S., the release of Korea’s November Industrial Activity Trends on the 28th, Korea’s year-end market holiday and the release of Korea’s December Consumer Price Index (CPI) on the 29th, and China’s December National Bureau of Statistics Purchasing Managers’ Index (PMI) on the 31st.