[Weekly Market Outlook] Fluctuations Expected Above 2600 Level... Time for Short-Term Risk Management

Last Week's KOSPI Closes at Second Highest Level of Last Year
Concerns Over Short-Term Overheating and Major US Economic Indicators Released

This week (2nd to 5th), the domestic stock market is drawing attention to whether the upward trend driven by expectations of a Federal Reserve (Fed) interest rate cut in the U.S. will continue into the new year. However, with major U.S. economic indicators scheduled for release and concerns over volatility due to short-term overheating, risk management is expected to be necessary.

On the 28th, the last trading day of the 2023 stock market, the KOSPI showed a firm trend with slight declines and rises after opening. The KOSDAQ experienced a slight decline. Photo by Huh Younghan younghan@

Last week (December 26th to 28th), the KOSPI closed at 2,655.28, up 2.15%. It reclaimed the 2,650 level for the first time since hitting 2,667.07 on August 1st last year (closing basis), finishing at the second-highest level of the year. During the same period, the KOSDAQ ended at 866.57, up 1.40%. Foreigners and institutions net purchased stocks worth 1.3669 trillion KRW and 1.1147 trillion KRW, respectively, over the week.

Choi Yoo-jun, a researcher at Shinhan Investment Corp., analyzed, "On the last trading day of the year, the KOSPI expanded its gains and closed near the August 1st peak. This was due to the synchronized improvement in global stock market sentiment and the limited influence of macro variables."

This week, caution is advised regarding the aftereffects of year-end dividend arbitrage program buying. Some listed companies purchased stocks to receive dividends on the ex-dividend date, but stocks bought for year-end dividends tend to be sold off in January or February to realize gains. In December last year (until the 28th), program buying inflows amounted to 6.77 trillion KRW.

Lee Kyung-min, a researcher at Daishin Securities, stated, "Due to the basis effect that maintained more than 1 point before the year-end ex-dividend date, the largest program net buying in December since 2000 was recorded. If extended to November, program net buying reached 9.5 trillion KRW over two months. Typically, program buying aimed at year-end dividends is released as selling pressure in January and February."

U.S. economic indicators that influence the domestic stock market are also scheduled for release this week, requiring appropriate responses. On the 4th, the December Institute for Supply Management (ISM) manufacturing index will be released, along with the Automatic Data Processing (ADP) private employment report. On the 6th, manufacturing orders data will be published, followed by December employment figures. Accordingly, Daishin Securities expects a 'Bad is Bad, Good is Bad' scenario to unfold this week.

Researcher Lee said, "Improvement in economic indicators may reduce expectations for rate cuts, stimulating stock market volatility, while weak employment data could trigger economic anxiety."

Considering these factors, Daishin Securities expects the KOSPI to fluctuate around the 2,600 level this week and recommends a conservative approach to stock investment. Given the recent sharp rise in both domestic and international markets, caution over profit-taking selling pressure is inevitable.

Lee added, "Even if the new year starts strongly, a conservative approach to stock investment is necessary. The index may continue to fluctuate above 2,600, but it is more likely to face downside risks than upside potential. Short-term risk management is essential."

There is also a view that expectations for U.S. interest rate cuts will remain valid in the new year. Kim Byung-yeon, a researcher at NH Investment & Securities, said, "The Fed's stance on rate cuts will provide downside resilience to the stock market," and predicted, "Neglected stocks that underperformed in previous markets are likely to outperform." He added, "Small and mid-cap stocks and value-style sectors are worth considering."

NH Investment & Securities set the KOSPI band for January at 2,450 to 2,650 points, raising the previous lower bound of 2,400 by 50 points.