[Weekly Market Outlook] February Different from January, KOSPI Continues Rebound Attempt

Last Week's Sharp Rise Recovers KOSPI 2600 Level
January Volatility Factors Expected to Ease in February
Further Rebound Attempts to Continue

The stock market this week (February 5-8) is expected to see continued attempts at a rebound in the KOSPI. The volatility factors that influenced the market in January are anticipated to gradually ease in February.

[Image source=Yonhap News]

Last week, the KOSPI rose by 5.52%, while the KOSDAQ fell by 2.68%. The KOSPI surged significantly last week, reclaiming the 2600 level for the first time in a month. Lee Kyung-min, a researcher at Daishin Securities, analyzed, "The KOSPI in February will show a different trend from January. While excessive gains have triggered profit-taking sentiment in the US and Japanese markets, the increased short-term price and valuation appeal caused by excessive declines have led to a rebound in the KOSPI."

The rebound attempts of the KOSPI are expected to continue for the time being. Lee said, "The KOSPI's rebound attempts are likely to persist as the US market struggles with profit-taking selling, whereas the KOSPI has already absorbed large-scale foreign futures and program selling. Additionally, expectations for the financial authorities' corporate value-up program are highlighting the KOSPI's undervaluation appeal." He added, "From a fundamental perspective, one of the causes of the KOSPI's differentiated weakness in January?the economic uncertainty in China?is calming down, and the possibility of improved investor sentiment is high due to the reserve requirement ratio cut in February. South Korea's January exports also showed an 18% increase, reflecting a changed situation compared to last January."

The volatility factors that affected the market in January are expected to ease in February. Roh Dong-gil, a researcher at Shinhan Investment Corp., stated, "The main causes of January's market volatility were fourfold: reduced disinflation expectations, earnings concerns, continued weakness in China's manufacturing sector, and volatility in the won-dollar exchange rate. These factors may decrease in February. The easing of disinflation expectations peaked with the hawkish January US Federal Open Market Committee (FOMC), and earnings concerns have gradually eased through earnings reports that met expectations. Although China's manufacturing sector remains weak, the Purchasing Managers' Index (PMI) shows improvement compared to the previous month, and won-dollar exchange rate volatility is easing due to the latter phase of interest rate reversals and the possibility of a rebound in China's economic weakness," he analyzed.

There is a cautionary view regarding overheating risks due to rapid short-term surges during the KOSPI's rebound process. Lee said, "Rapid short-term rotation continues during the KOSPI's rebound. Recently, expectations for the corporate value-up program have driven sharp rises in sectors such as automobiles, finance, and holding companies. Since detailed plans are scheduled to be announced in February, the positive sentiment is valid for now, but the overheating risk due to rapid short-term gains should be carefully monitored."

However, with mixed positive and negative factors in the market and the Lunar New Year holiday approaching, a cautious stance may deepen. Kim Young-hwan, a researcher at NH Investment & Securities, said, "The domestic market is facing mixed factors: robust recovery in Korean exports and expectations for government market stimulus policies are positives, while disappointment over the Fed's early rate cut and investors' excessive expectations for US big tech earnings, which are being adjusted, are negatives. The completion of earnings announcements by large-cap stocks and the upcoming Lunar New Year holiday are factors that increase cautious sentiment." NH Investment & Securities has set the expected KOSPI range for this week at 2480 to 2600.

Key schedules for this week include the release of China's January Caixin Services PMI and the US January Markit Services PMI on the 5th; the US January Institute for Supply Management (ISM) Non-Manufacturing Index and Eurozone December retail sales on the 6th; and China's January Consumer Price Index on the 8th. Earnings announcements from major US and domestic companies will also continue. On the 5th, McDonald's and Caterpillar will report earnings; on the 7th, Walt Disney; and on the 9th, PepsiCo. Domestic companies scheduled to announce earnings include SK Telecom on the 5th; SK Innovation and Hyundai Heavy Industries on the 6th; KB Financial Group and EcoPro on the 7th; and Shinhan Financial Group and Krafton on the 8th.