[MarketING] What Are the Stock Market Variables After the Holiday? Will KOSPI Continue Its Smooth Sailing?

Attention on US January CPI
Continued Interest Expected in Low PBR Stocks

Attention is focused on whether the KOSPI will continue its upward trend after the Lunar New Year holiday. This week, with the U.S. inflation data scheduled for release, the market is expected to be influenced by expectations of policy changes by the U.S. Federal Reserve (Fed) based on the inflation data results.

According to the Korea Exchange on the 12th, last week the KOSPI rose by 0.19% and the KOSDAQ by 1.45%. The KOSPI closed higher for three consecutive weeks on a weekly basis. Although it fell for two consecutive days early in the week, dropping below the 2600 level, it recovered the 2600 level with two consecutive days of gains and rose to around 2620.

[Image source=Yonhap News]

This week’s stock market is expected to be influenced by the U.S. inflation data for January. The Consumer Price Index (CPI) for January is scheduled for release on the 13th, and the Producer Price Index (PPI) for January on the 16th. Myunggan, a researcher at Mirae Asset Securities, said, "This week’s stock market will be highly sensitive to interest rate changes," adding, "The core CPI on the 13th and retail sales data on the 15th are key; if the results come out higher than expected, expectations for a Fed pivot (policy shift) will weaken further."

Bloomberg’s forecast for the January CPI is 2.9%, and for the core CPI, 3.7%. In December, these were 3.4% and 3.9%, respectively, so the prevailing view is that the figures will decline compared to the previous month. Ji-young Han, a researcher at Kiwoom Securities, said, "It is necessary to monitor events occurring in the U.S. during the domestic holiday period, but whether risk appetite will spread depends on the U.S. January CPI released immediately after the holiday," adding, "The January U.S. Federal Open Market Committee (FOMC) and subsequent remarks by Fed Chair Jerome Powell, as well as cautious approaches to rate cuts emphasized by regional Fed officials such as the Cleveland Fed President on the 7th and the Richmond Fed President, are directly linked to the direction of inflation." She continued, "The key will be whether the January CPI results can further strengthen their confidence that inflation is moving toward the 2% target."

However, it should also be considered that since the December CPI came out high, expectations that inflation will slow again from January have already been priced into the stock market. The ongoing geopolitical tensions in the Red Sea region, which keep freight and logistics costs volatile, also suggest that short-term discomfort regarding inflation could be injected into the market. One researcher said, "Ultimately, the January CPI needs to come in below consensus (the average forecast by securities firms) to further alleviate uncertainties about the Fed’s policy path and valuation-related interest rate burdens, so early-week inflation data will determine the stock market’s direction during the week."

In addition, major U.S. real economy indicators and the MSCI quarterly review are expected to affect the stock market. One researcher explained, "The domestic stock market will be influenced by the U.S. January CPI as well as major U.S. real economy indicators such as January retail sales and industrial production, and the MSCI quarterly review," adding, "The expected weekly KOSPI range is 2540 to 2670 points." He also added, "Whether EcoProMarty is included in the MSCI regular review scheduled for the 13th will affect the supply and demand of growth stocks including secondary battery stocks this week."

Interest in low price-to-book ratio (PBR) stocks is also expected to continue. Researcher Yoo said, "Interest in low PBR stocks will persist until detailed policies are announced, supported by companies’ shareholder return policies and positive foreign demand," adding, "As of the 7th, the confirmed KOSPI PBR is 0.95 times; considering the downward revision of return on equity (ROE), there is short-term valuation pressure, but from a mid- to long-term perspective, if Korean companies can expand their dividend payout ratios, the PBR could rise."