[Market ING] US Economic Indicators as Variables... KOSPI Attempts to Settle Above 2600

Last Week KOSPI Closed at 2588.43
This Week's KOSPI Expected Range 2500~2620
Volatility Expansion Phase, Rather an Opportunity to Increase Weight

This week (12th~16th), the domestic stock market is expected to attempt to stabilize around the 2600 level while closely monitoring economic indicators released in the U.S. amid ongoing concerns about a U.S.-originated economic recession. Securities firms have projected the KOSPI's expected band for this week to be between 2500 and 2620.

[Image source=Yonhap News]

According to the Korea Exchange on the 11th, last week the KOSPI closed at 2588.43, down 87.76 points (3.28%) from the previous week (2676.19). After recording the largest drop ever on the 5th, remembered as Black Monday, the index seemed to recover to the 2600 level toward the end of the week but ultimately remained around the 2580 level.

During this period, foreigners and institutions sold a net amount of 2.195 trillion KRW and 1.6557 trillion KRW respectively in the KOSPI market, while individuals were net buyers with 3.5576 trillion KRW.

NH Investment & Securities projected the KOSPI's expected band for this week to be between 2500 and 2620. Researcher Kim Young-hwan of NH Investment & Securities said, "Although the fear of R (recession) has somewhat eased, investors still remain cautious. If the new indicators from the U.S. are not overly concerning, the fear of recession could subside."

The U.S. indicators mentioned by Researcher Kim include the July Consumer Price Index (CPI), retail sales, and the August University of Michigan Consumer Sentiment Index. These indicators provide clues about the direction of interest rates in the upcoming September.

Researcher Kang Jin-hyuk of Shinhan Investment Corp. noted, "Given the heightened market caution, it is necessary to be aware that the downside shock from signals of economic slowdown could be significant. The earnings reports from retailers such as Home Depot (on the 13th local time) and Walmart (on the 15th) will also provide insights into the mood of U.S. private consumption."

The risk of unwinding the 'yen carry trade' (borrowing low-interest yen to invest in high-interest currency assets) due to the rise in the yen's value is another factor to watch. Uchida Shinichi, Deputy Governor of the Bank of Japan (BOJ), calmed the market by stating that there would be no base rate hike amid financial market instability.

Since yen carry trade sell-offs are not infinite, some view the increased volatility caused by short-term issues as an opportunity to increase exposure. Researcher Lee Kyung-min of Daishin Securities said, "The key point here is that yen carry trade sell-offs are not infinite. As liquidation progresses, the potential volume will decrease, and the force stimulating market volatility will inevitably weaken. Although fluctuations in the global financial market and KOSPI will inevitably repeat during the interpretation of economic indicator results until the Jackson Hole Meeting from August 22 to 24 and the FOMC meeting on September 18, a positive outlook is necessary."