[Weekly Market Outlook] Technical Rebound Expected but Trend Reversal 'Not Yet'

The stock market this week (January 22-26) is expected to undergo a pause and show a technical rebound. However, it is anticipated to be difficult to expect a trend reversal beyond the technical rebound.

[Image source=Yonhap News]

Last week, the KOSPI fell by 2.07% and the KOSDAQ dropped by 2.93%. On the 16th, the KOSPI fell more than 1%, breaking below the 2500 level for the first time in a month, and on the 17th, it dropped over 2%, giving up the 2450 level as well. Afterwards, due to positive semiconductor news from the U.S. and inflows of bargain buying, it rose for two consecutive days, recovering to the 2470 level to close the week. Lee Kyung-min, a researcher at Daishin Securities, analyzed, "In January, seasonal supply and demand influence was maximized, causing the KOSPI to level down to the low 2400s. Especially after the preliminary earnings announcements from Samsung Electronics and LG Energy Solution, concerns about the 2024 earnings consensus (average securities firm forecasts) and increased volatility in the foreign exchange market accelerated large-scale foreign futures selling and program selling."

There is an opinion that the supply and demand burden, which was the cause of the one-sided weakness in the KOSPI, has passed its peak. The researcher explained, "Since January, foreigners have net sold over 6 trillion won in the futures market, absorbing more than half of the inflows in November and December (8.45 trillion won). Although potential selling volume remains, about half of the program buying (6.8 trillion won) that flowed in December has also been cleared, so the one-sided weakness of the KOSPI due to supply and demand variables will calm down."

While a technical rebound due to continued decline may occur, it is expected to be difficult to see a trend reversal yet. Kim Young-hwan, a researcher at NH Investment & Securities, said, "A technical rebound from the sharp decline may occur, but it is judged to be short-term. It is necessary to maintain a conservative view for the time being and respond focusing on stocks that record earnings surprises during the generally weak Q4 earnings season last year." NH Investment & Securities suggested the expected KOSPI band for this week to be between 2380 and 2500.

The researcher added, "It is difficult to expect a trend reversal beyond the technical rebound because there are still many issues to resolve, such as geopolitical risks, the narrowing gap between market expectations for monetary policy and the stance of the U.S. Federal Reserve (Fed), ongoing uncertainty in the Chinese economy, and concerns about the Q4 earnings season." He continued, "While resolving the remaining issues, the KOSPI is likely to continue a period of adjustment, so until then, it is necessary to focus on short-term trading while maintaining risk management rather than active responses."

Key schedules for this week include the U.S. Conference Board Leading Economic Index for December and Korea's December Producer Price Index (PPI) on the 23rd; Eurozone January European Commission Consumer Confidence Index and U.S. January Markit Purchasing Managers' Index (PMI) preliminary figures on the 24th; Korea's Q4 GDP for last year, U.S. December durable goods orders, and U.S. Q4 GDP (advance estimate) on the 25th; and U.S. December Personal Consumption Expenditures (PCE) Price Index on the 26th. Earnings announcements from major U.S. and domestic companies will also continue. On the 23rd, Microsoft (MS), P&G, Netflix, and Verizon will report earnings; on the 24th, Tesla, ASML, and IBM; and on the 25th, Visa and Intel. Domestic companies scheduled to announce earnings include Samsung Biologics, Kia, and POSCO Future M on the 24th, and SK Hynix, Hyundai Motor, NAVER, POSCO Holdings, and Samsung SDI on the 25th.