"Macro Uncertainty Extends Through Chuseok Holiday... Must Respond with Defensive Stocks"

Report Issued by Kim Daejun, Researcher at Korea Investment & Securities
Analysis of Past Cases... Most Chuseok Holidays Show Calm Market
Responding with Defensive Stocks Such as Pharmaceuticals, Tobacco, Telecommunications, and Utilities

Ahead of the three-day Chuseok holiday, advice has been given to maintain a focus on defensive stocks such as pharmaceuticals, tobacco, telecommunications, and utilities to cope with uncertainty.

[Image source=Yonhap News]

Kim Dae-jun, a researcher at Korea Investment & Securities, stated in a report released on the 9th, "With macroeconomic instability and bonds showing extreme strength, and the Chuseok holiday approaching, it is not easy to actively adjust investment portfolios," adding, "Therefore, there is no need for significant tactical changes for the time being. Maintaining a weighting in defensive stocks such as pharmaceuticals, tobacco, telecommunications, and utilities is expected to be advantageous for protecting returns."

Looking back at past cases, he analyzed that the stock market before the Chuseok holiday mostly showed a lull. Researcher Kim said, "Examining the KOSPI from 2000 to 2023, trading volume during the five trading days before the holiday is smaller than after the holiday," and added, "Before the holiday, stock selling occurs for risk avoidance, which reduces the number of times the KOSPI rises."

In fact, over the past 24 years, the number of times a positive (+) return was recorded during the five trading days before the holiday was 11, with a probability of 45.8%. After the holiday, it was 14 times, with a probability of 58.3%.

He predicted that this year, the market sentiment to temporarily step back might be stronger than usual due to increased uncertainty from a fundamental perspective. Researcher Kim said, "Korea's economic momentum is noticeably stagnating, as seen in leading indicators and export growth rates," and added, "With the end of the Q2 earnings season, macro sensitivity has increased, so investment sentiment may change depending on economic indicator fluctuations."

Moreover, recently released U.S. employment data and the "three rules" index used to judge recession have contributed to growing anxiety. As a result, the U.S. benchmark interest rate cut is expected to expand to 125 basis points by December this year. The yield curve also showed declines in interest rates across all maturities. This is why he advised responding to stock market volatility mainly with defensive stocks, as mentioned earlier.

He said, "The 'three rules' index used to judge recession worsened from 0.53 percentage points to 0.57 percentage points," adding, "These results have had a significant impact on dampening risk asset preference sentiment."