[Market ING] KOSPI Falls to Around 2600 Level, Where Is the Bottom?

This week’s (August 5-9) stock market will focus on whether the KOSPI, which fell below the 2700 level, can recover from the shock of the sharp decline and regain stability.

Last week, the KOSPI fell by 2.04%, and the KOSDAQ dropped by 2.29%. In particular, on August 2, the KOSPI plunged 3.65%, breaking below the 2700 level. This was the largest drop in about four years since August 20, 2020 (3.66%). The KOSDAQ also plunged more than 4%, falling to the 770 level, its lowest since November 13 last year (774.42). Ji-won Kim, a researcher at KB Securities, analyzed, "Amid concerns over a U.S. economic recession, the domestic stock market also plunged sharply. The KOSPI recorded its largest drop since the pandemic. Foreign investors intensified capital outflows, with net short selling of KOSPI futures exceeding 2 trillion won."

There are opinions that the KOSPI has entered a deep value (deep undervaluation) phase. Kyung-min Lee, a researcher at Daishin Securities, said, "The KOSPI’s 12-month forward price-to-earnings ratio (PER) fell below 9 times, reaching the lowest level since the end of 2022 when the KOSPI hit a low of 2169 points (PER 8.82 times at that time). Especially, it is the first time since 2017 that the forward PER fell below 9 times during a phase of rising 12-month forward earnings per share (EPS). Due to excessive concerns about an economic recession and large-scale foreign futures selling, the KOSPI has entered a deep value phase," he explained.

Volatility this week may be lower, but the recovery momentum is also expected to be limited. Joon-ki Cho, a researcher at SK Securities, said, "The 120-day moving average, which had acted as a strong support line for the KOSPI since February this year without being broken on closing prices, collapsed instantly under the heavy selling pressure. The next support line will be the 200-day moving average (closing price on August 2: 2627.72). Since the scheduled events this week are limited, volatility may be somewhat reduced, but recovery resilience may also be limited accordingly."

Byung-yeon Kim, a researcher at NH Investment & Securities, said, "The price adjustment is judged to be a reasonable suspicion of an economic recession, but the KOSPI’s drop of more than 100 points (3.65%) and SK Hynix’s decline of over 10% are excessive. With the appearance of a long bearish candlestick, the KOSPI will seek direction in the short term between the closing prices of 2777 points on August 1 and 2676 points on August 2," he forecasted.

There is an analysis that the market is heading toward a short-term bottom. Ji-won Kim said, "The market is moving toward a short-term bottom, with an expected drop of about 10% from the peak based on the KOSPI. Buying responses are considered possible from the mid-2600 level," he said.

There is an opinion that chasing sales is not beneficial. The researcher said, "As the KOSPI broke below the previous low of 2700, a change of course is inevitable, but at the current price level and valuation, chasing sales is not beneficial. Although fluctuations may continue for a while, maintaining or even increasing weight is a valid strategy." He added, "Foreign futures selling is heading toward a climax, and it is estimated that more than half of the yen carry trade liquidation has been completed."

Major schedules this week include the U.S. ISM Services Index for July on August 5, China’s July export and import data on August 7, and China’s July Consumer Price Index (CPI) and Producer Price Index (PPI) on August 9.

Earnings announcements from major U.S. and domestic companies will also continue. Berkshire Hathaway will report on August 5; Caterpillar, Uber, and GlobalFoundries on August 6; Disney on August 7; and Eli Lilly on August 8. Domestic companies scheduled to announce earnings include Korea Financial Group on August 5; SK Telecom and Amorepacific on August 6; KT, HYBE, and Shinsegae on August 7; Kakao on August 8; and NAVER and CJ Logistics on August 9.