[Market ING] KOSPI Retreats to the 2600 Level, Short-Term Uncertainty Increases

Rising Uncertainty in Prices and Interest Rates
Declining Expectations for Rate Cuts Stir Stock Market Volatility
Focus on Foreign Investor Flows Amid Dollar Strength

The stock market this week (April 15-19) is expected to maintain cautious sentiment due to increased uncertainty following the retreat of interest rate cut expectations.

Last week, the KOSPI fell by 1.19% and the KOSDAQ by 1.36%. As important events such as the domestic general election and the release of the U.S. March Consumer Price Index (CPI) were digested, cautious sentiment prevailed, resulting in a sluggish market trend. The KOSPI closed at 2681.82 on the 12th, falling below the 2700 level for the first time in 16 trading days. Ji-won Kim, a researcher at KB Securities, said, "Last week, the U.S. CPI and the general election results were the main focus, reflecting heightened inflation concerns and a retreat in policy expectations such as value-up, causing both the KOSPI and KOSDAQ to show a decline of around 1%."

[Image source=Yonhap News]

The retreat in interest rate cut expectations is likely to stimulate stock market volatility. Kyung-min Lee, a researcher at Daishin Securities, explained, "Due to the March CPI shock and the release of the U.S. Federal Open Market Committee (FOMC) minutes, expectations for interest rate cuts have significantly retreated. According to the Chicago Mercantile Exchange (CME) FedWatch tool, the probability of a rate hold in June exceeds 80%, and the probability of a rate hold in July has risen to the 50% range. The first rate cut is now expected in September, and the second in January next year, reflecting a significant delay caused by the March CPI shock, with only one or two rate cuts anticipated within this year." He added, "In an environment where liquidity conditions are not favorable and monetary policy expectations are weakening, combined with the economic slowdown in the second quarter, these factors could trigger volatility in global financial markets. Therefore, it is necessary to maintain cautious sentiment regarding increased stock market volatility."

As uncertainty rises, there are opinions that attention should be paid to sectors related to artificial intelligence (AI), such as semiconductors. Young-hwan Kim, a researcher at NH Investment & Securities, said, "In the short term, with increased uncertainty around inflation, interest rates, and oil prices, demand within the stock market is likely to concentrate on the clearest sectors. We recommend a portfolio focused on semiconductors and areas related to AI investments by major U.S. big tech companies." NH Investment & Securities has set the expected KOSPI range for this week at 2640 to 2760.

With the continued strength of the U.S. dollar, changes may occur in foreign investor demand, which has supported the stock market so far, so it will be important to monitor this. After digesting the results of the general election and CPI announcement on the 11th, the KOSPI performed relatively well but fell below the 2700 level on the 12th due to a sharp rise in the won-dollar exchange rate and worsening foreign investor demand. On that day, the won-dollar exchange rate closed at 1375.4 won, up 11.3 won from the previous session, marking the highest level in 17 months in the Seoul foreign exchange market. Foreign investors sold more than 1.2 trillion won net in the futures market, pulling the index down. Jin-hyuk Kang, a researcher at Shinhan Investment Corp., said, "The dollar index is at its highest level since November last year, and the won-dollar exchange rate is at its highest in 17 months since November 2022. Along with expectations of a pivot (monetary policy shift) by the European Central Bank (ECB) and instability in the Middle East supporting the dollar's strength, we need to pay attention to the exchange rate's downward rigidity and foreign investor demand for the time being."

Key schedules for this week include the release of U.S. March retail sales on the 15th; China's first-quarter gross domestic product (GDP), March industrial production, retail sales, and fixed asset investment on the 16th; and U.S. March industrial production. On the 18th, the U.S. Federal Reserve's Beige Book and the U.S. March Conference Board Leading Economic Index are scheduled to be released. Researcher Lee explained, "This week, U.S. and Chinese real economy indicators will be released. While U.S. retail sales and industrial production are expected to continue improving month-on-month, if indicators such as the recent weak Institute for Supply Management (ISM) services index fall short of expectations, concerns about the number and timing of interest rate cuts may ease. The Chinese industrial production, retail sales, and fixed asset investment data released on the 16th are expected to slow due to base effects, so attention should be paid to changes in the yuan exchange rate."