[Market Watch] "This Year’s Stock Market Expected to Be in a Box Range... US and India Markets Positive"

Interview with Park Hee-chan, Head of Research Center at Mirae Asset Securities

"This year, the domestic stock market is expected to show a box range trend. While the favorable situation in the U.S. will have a positive effect on the domestic stock market, significant pressure for earnings downward revisions is expected due to the sluggish domestic market and China's weakness."

Heechan Park, Head of Research Center at Mirae Asset Securities

On the 1st, at the Euljiro Mirae Asset Securities headquarters, Park Hee-chan, head of the Mirae Asset Securities Research Center, shared this outlook for this year's stock market. Park, an investment expert responsible for global asset allocation and investment strategies, was appointed as the new head of the Research Center at the end of last year and is currently leading the center. He predicted that the domestic stock market this year will be influenced by both the favorable U.S. market and the sluggish Chinese market, resulting in a box range trend.

He explained, "Basically, the U.S. Federal Reserve (Fed) is expected to lower interest rates this year, normalizing rates, which could continue for a considerable period and present opportunities for asset markets. The U.S. market is likely to remain strong, positively impacting Korea, but combined with factors such as earnings downward revision pressure from domestic demand and China's weakness, the overall trend will be a box range."

U.S. and India Markets Most Favorable... China’s Weakness and Japan’s Currency as Variables

Among global markets, the U.S. and India were cited as expected to show the best performance. India’s economic growth rate reached 7.3% last year, likely the highest among major countries. Based on this economic growth, the Indian stock market has continued to strengthen, recently surpassing the Hong Kong market to become the world’s fourth-largest market. Park said, "Looking at Indian companies’ data, sales growth is very strong. Indian companies are primarily domestic-market oriented, which involves less uncertainty than export-oriented firms, and the domestic growth is favorable, making profitability indicators extremely stable. Generally, competition intensifies during growth phases, reducing margins, but the Modi government’s pro-chaebol economic policies allow conglomerates to enjoy domestic growth without much competition, so profits rise in line with sales. This expectation is well established, so there is no reason for stock prices to collapse."

He predicted a delayed recovery for the Chinese stock market. Park explained, "China’s problem is deflation, which means corporate sales do not increase, and without sales growth, profits cannot grow either. The Chinese government needs to take active measures against deflation, but such actions are not visible, so stock prices are likely to experience a delayed recovery from the current state." Regarding Japan’s stock market, which has been booming since last year, he advised caution due to yen volatility. Park said, "Japan’s stock market is actively investing in semiconductors because of artificial intelligence (AI), highlighting materials, parts, and equipment with high competitiveness and monopoly power. However, the overall Japanese market is exposed to yen volatility, so it is not as safe as the U.S. market and requires caution."

The Biggest Variable for This Year’s Stock Market is the U.S. Presidential Election

Park identified the U.S. presidential election as the most important variable affecting this year’s stock market. He said, "The U.S. election is the biggest variable, and the possibility of Trump’s election will act as a significant discomfort factor in the market around this fall. ‘America First’ policies and increased pressure on China are expected, and since Trump supports traditional energy, there is also a possibility of repealing the Inflation Reduction Act (IRA), creating considerable uncertainty for secondary batteries and others." However, he noted that the first half of the year could present opportunities. Park explained, "The Democratic Party is expected to introduce economic stimulus measures to attract votes, so the first half is seen as an opportunity. Ultimately, it comes down to monetary and fiscal policies, but fiscal policy will be difficult as Congress is unlikely to cooperate. Considering this, the timing of interest rate cuts is unlikely to be delayed much, which could be an opportunity for the market."

The possibility of a U.S. recession cannot be ruled out and is expected to be a variable. Park said, "There is still a possibility of a U.S. recession. If the economy achieves a soft landing and interest rates are cut, it would be very positive for the stock market, but consumption may retreat, causing pressure on job reductions." He added, "The valuation of the U.S. stock market is very high, so if growth concerns arise, stock prices could be significantly shaken."

He viewed the government’s recently announced 'Corporate Value-Up Program' as a positive variable. Park said, "In Korea, the Corporate Value-Up Program could be a positive variable, but it may not be a short-term factor. The government cannot achieve everything by just presenting plans; active participation from companies is necessary."

Semiconductors 'Clear' and Secondary Batteries 'Cloudy'

Semiconductors and secondary batteries, which led the stock market last year, are expected to show contrasting trends this year. While semiconductors are expected to have a positive trend with earnings turnaround, secondary batteries face concerns over profit declines due to intensified competition. Park said, "I see limited places where stock investment funds will flow other than semiconductors. I am optimistic about semiconductors due to the earnings turnaround."

Regarding secondary batteries, he said, "I basically do not recommend them. There are several variables: electric vehicle demand is inevitably limited in a high-interest-rate environment, and Tesla’s price cuts have led to a competitive landscape. When prices drop, cost pressure on value chain materials and parts is unavoidable. Additionally, Chinese companies’ technological capabilities continue to improve, intensifying competition, so profit growth cannot be properly realized due to price cuts and competition."