[Market ING] This Week's General Election and US CPI as Variables... Caution on 'Volatility' in Domestic Stock Market

This week (April 8-12), the domestic stock market is expected to experience increased volatility due to overlapping factors such as the March Consumer Price Index (CPI) and the results of the 22nd National Assembly elections. Market attention is focused on whether stocks related to the value-up program will gain additional upward momentum depending on the election outcome.

The KOSPI opened at 2,752.26, down 4.83 points (0.18%) from the previous trading day (2,757.09), fluctuating throughout the day on the 27th. Employees are working in the dealing room at the Hana Bank headquarters in Jung-gu, Seoul. Photo by Jo Yongjun jun21@

According to the Korea Exchange on the 7th, last week the KOSPI closed at 2,714.21, down 1.18% (32.42 points) from the previous week. Institutional investors sold 2.2461 trillion KRW in the securities market, while foreigners and individuals defended the index by net buying 1.7489 trillion KRW and 536 billion KRW, respectively.

During the same period, the KOSDAQ index ended the week at 879.29, down 3.67% (33.21 points). Institutions and foreigners showed net selling of 429.2 billion KRW and 201.8 billion KRW, respectively, while individuals were the sole net buyers with 768.7 billion KRW.

The key domestic variable influencing the market this week is the general election scheduled for the 10th. Currently, the ruling party advocates for the abolition of the Financial Investment Income Tax (FIIT), whereas the opposition insists on its introduction. This means that the election results could bring changes to financial policy direction. There is also speculation that it could affect the implementation of the value-up program, which drove stock market gains in the first quarter of this year.

Lee Kyung-min, a researcher at Daishin Securities, stated, "If the Democratic Party secures more than 200 seats, doubts about the execution of the value-up program will increase. Conversely, if the People Power Party wins more than 150 seats, expectations for the value-up program will rise again, potentially strengthening the reversal of the low price-to-book ratio (PBR) stock sentiment."

The U.S. March CPI, to be announced on the 10th, is also a key indicator that the market is watching. Continued high inflation could weaken expectations for interest rate cuts, raising concerns about increased stock market volatility.

Kim Young-hwan, a researcher at NH Investment & Securities, said, "The weekly expected range for the KOSPI index is between 2,680 and 2,800," adding, "While there is optimism about the first-quarter earnings season this year, inflation concerns in the U.S. and uncertainties related to the domestic general election are downside factors."

He further explained that since the election results could act as a factor influencing the stock market, investors should prepare for the possibility of increased short-term volatility, especially in stocks sensitive to government policies.

Given the numerous domestic and international issues that could affect market volatility, experts advise focusing on large-cap stocks.

Yoo Myung-gan, a researcher at Mirae Asset Securities, recommended, "In the absence of major domestic companies' first-quarter earnings announcements, investors should be cautious of increased price volatility due to policy issues or changes in macroeconomic indicators. It is advantageous to focus on large-cap stocks rather than mid- and small-cap stocks, which tend to have higher price volatility."

Meanwhile, the Bank of Korea's Monetary Policy Committee meeting is scheduled for the 12th. Most market experts expect the Bank of Korea to keep the base interest rate unchanged at the current level of 3.50%.