[Market ING] Low PBR Stock Rally Aftermath... Possible March Market Slowdown

The upward momentum of low price-to-book ratio (PBR) stocks, which led the stock market rally last month, has weakened, causing the KOSPI's rise to stall. The stock market is expected to continue a consolidation phase this week (March 4-8).

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Last week, the KOSPI fell by 0.95%, and the KOSDAQ dropped by 0.65%. Disappointment over the corporate value-up support plan announced on the 26th acted as downward pressure on the market. The KOSPI, which had risen to the 2690 level the previous week, fell back to the 2640 level last week.

The stock market, which rose on expectations for the February corporate value-up program, is expected to slow down this month. Labor Gil, a researcher at Shinhan Investment Corp., explained, "The KOSPI rebounded in February after a period of weakness due to a weakening of adjustment factors. Concerns over earnings triggered by Q4 results last year have eased over time, and the rise in interest rates due to reduced disinflation expectations and a subdued weak dollar have been reflected in market prices. The rebound of the Chinese stock market on expectations of interest rate cuts and stimulus measures stabilized KOSPI investor sentiment and supply-demand. Additionally, the government’s value-up program revitalized value stocks that had been excessively undervalued." He added that the key issue is how to respond going forward. Researcher Noh said, "Considering both earnings per share (EPS) and price-to-earnings ratio (PER), it is necessary to keep in mind the possibility of a slowdown in March. The KOSPI EPS is expected to trend upward in the first half of the year, considering global economic growth and exports, but momentum recovery in March is unlikely. The Fed’s March monetary policy meeting is expected to have a hawkish tone, though the possibility of further rate hikes is low." He added, "The KOSPI is expected to trade within a limited box range in March."

Breaking through the 2700 level in March is possible, but the market is expected to enter a phase of directional exploration afterward. Han Ji-young, a researcher at Kiwoom Securities, said, "Although the stock price recovery in February was strong, unlike the US and Japanese markets that hit consecutive new highs, the KOSPI faced resistance at the 2700 level. Nevertheless, since the index’s lower level has risen compared to before, the possibility of breaking through the 2400 level in March is high. The issue is whether the index can level up further after stabilizing. With the end of the Nvidia earnings event and increasing uncertainties surrounding the February Consumer Price Index (CPI) and the March Federal Open Market Committee (FOMC) meeting, the stock market is expected to enter a phase of directional re-exploration until the end of March."

During the gap in the value-up program, a rotation strategy is expected to be necessary. The researcher said, "Until the second value-up seminar in May, there will be no policy momentum, so in the short term, a rotation among small and mid-cap stocks that were excluded from the low PBR market is expected in March. Rotation focusing on IT, biotech, and small and mid-cap stocks, which were sidelined in the recent low PBR-driven rally, is needed."

This week, 'Super Tuesday' is scheduled, raising the possibility of increased uncertainty in the US presidential election. On Tuesday, March 5, simultaneous primaries for both the Democratic and Republican parties will be held in 16 states including California, Texas, and Virginia. Kim Il-hyuk, a researcher at KB Securities, said, "Republican candidate Nikki Haley said she would not withdraw before Super Tuesday despite losing in South Carolina. However, the Koch network, which funds conservatives, has announced it will stop supporting Haley. If Haley withdraws, Donald Trump will be the sole Republican candidate. If election uncertainties are priced in after Super Tuesday, interest rates will face upward pressure."

Key events this week include the release of China’s Caixin Services Purchasing Managers’ Index (PMI) and the US ISM Services PMI for February on the 5th, followed by the Beige Book economic report on the 6th. On the 8th, China’s February CPI and Producer Price Index (PPI), as well as the US February employment report, are scheduled for release. Notably, Fed Chair Jerome Powell is expected to appear before Congress on the 6th and 7th, testifying to the House on the 6th and the Senate on the 7th with his semiannual monetary policy report.