[MarketING] This Week's Stock Market... Focus on Earnings and US Inflation Indicators

KOSPI Drops 3.2% Over the Week
Institutions and Foreigners Net Sell 2.1 Trillion Won
Rate Cut Delay Remarks and Middle East Risks

This week (22nd-26th), the domestic stock market is expected to show sectoral differentiation ahead of the first-quarter earnings announcements of domestic and international companies. Variables such as geopolitical risks depending on whether additional clashes occur between Israel and Iran, and exchange rate movements, are also likely to contribute to increased market volatility.

On the 17th, the status board in the dealing room of Hana Bank's headquarters in Jung-gu, Seoul, displayed the KOSPI, KOSDAQ indices, and the KRW/USD exchange rate. On that day, the KOSPI opened at 619.15, up 9.52 points (0.36%) from the previous session, and the KOSDAQ index started at 839.3, rising 6.49 points (0.78%) from the previous trading day. The KRW/USD exchange rate began at 1,390.0 won, down 4.5 won from the previous day. Photo by Jo Yongjun jun21@

According to the Korea Exchange on the 21st, the KOSPI index closed at 2,591.86 on the 19th, down 3.35% from the previous week. Institutional investors led the decline by net selling 1.7062 trillion won in the securities market. Foreigners also had a net selling position of 411.5 billion won. Only individual investors bought 1.9852 trillion won.

During the same period, the KOSDAQ closed at 841.91, down 2.51%. While foreigners sold 357.3 billion won worth of stocks, institutions and individuals net bought 226.2 billion won and 171.6 billion won, respectively.

Jerome Powell, Chair of the U.S. Federal Reserve (Fed), made hawkish remarks (favoring monetary tightening), raising concerns that the expected interest rate cut originally anticipated in June this year might be postponed to the fourth quarter, weakening investor sentiment.

Moreover, when Israel retaliated by attacking Iran’s mainland on the 19th (local time), the KOSPI index fell more than 1%, widening the decline. The U.S. has reiterated its opposition to escalation, so the possibility of immediate escalation is considered low. However, since both countries have broken the taboo of striking each other’s mainland, concerns about a larger conflict have been raised.

Considering these factors, the domestic stock market is also expected to be influenced by related issues next week.

Kim Seok-hwan, a researcher at Mirae Asset Securities, said, "Market volatility tends to continuously expand whenever related reports emerge, making a contraction in investor sentiment inevitable. However, market participants expect volatility to decrease if there are no additional large-scale attacks by Iran or a blockade of the Strait of Hormuz."

Jo Byung-hyun, a researcher at Daol Investment & Securities, said, "The won-dollar exchange rate, which surged due to seasonal and policy reasons, is also calming down. Although the burden of high exchange rates and high interest rates remains a factor stimulating market volatility throughout the second quarter, in the short term, the sensitivity is expected to ease along with the slowdown in the upward momentum that has already occurred."

The won-dollar exchange rate, which has been a burden on the domestic stock market, showed some stability by falling to the 1,370 won level due to verbal intervention by Korean and Japanese financial authorities, but it rose again to the 1,380 won level, remaining a source of market instability. On the 19th, the won-dollar exchange rate in the Seoul foreign exchange market was 1,382.2 won, 7.3% higher than the closing price at the end of last year (1,288.0 won).

In the securities industry, there is also a forecast that corporate earnings will act as a key variable supporting the stock market amid increased uncertainty from external factors.

This week, earnings announcements from the M7, representing global innovative companies, are scheduled. For U.S. companies, Alphabet and Tesla will report on the 23rd, Meta and Qualcomm on the 24th, and Microsoft, Amazon, and Intel on the 25th. Among major domestic companies, Samsung Biologics will report on the 23rd; Samsung C&T and S-Oil on the 24th; SK Hynix, LG Electronics, LG Energy Solution, Samsung SDI, POSCO Holdings, HD Hyundai Heavy Industries, KB Financial Group, Shinhan Financial Group, Hana Financial Group, and Kia on the 25th; Hyundai Mobis and Doosan Enerbility on the 26th; and Samsung Electronics on the 30th.

Kim Young-hwan, a researcher at NH Investment & Securities, said, "In a situation where uncertainty surrounding external factors in the financial market is increasing, corporate earnings are the key variable supporting the stock market. Since a strict standard is likely to be applied to corporate earnings, it has become important to distinguish the wheat from the chaff." He added, "We recommend paying attention to sectors related to U.S. investments and export sectors that can expect profitability improvement due to won depreciation." NH Investment & Securities has set the expected KOSPI index band for this week at 2,570 to 2,690.

Kang Jin-hyuk, a researcher at Shinhan Investment Corp., said, "Whether stock prices rise and foreign capital inflow continue will be determined this week depending on the Middle East situation and earnings announcements. Just as the index movements diverged last week following ASML and TSMC earnings, meeting earnings expectations and confirming upward guidance can positively affect investor sentiment."

On the 26th, the U.S. Personal Consumption Expenditures (PCE) price index for March is scheduled to be released. The U.S. Federal Reserve (Fed) uses the PCE as a key variable in its interest rate policy decisions.