[MarketING] Impeachment Passed... Experts Say "Stock Market Rally Will Continue"

KOSPI Closing Price Recovers to Pre-Martial Law Level
Focus on Sectors with Excessive Decline and Expected Profit Growth Next Year
Continued KRW Depreciation Poses Pressure on Stock Market

This week (16th-20th), the domestic stock market is expected to continue the rebound of the KOSPI index following the parliamentary approval of the presidential impeachment motion. As political uncertainty somewhat eases, it is anticipated that the suppressed reversal of the KOSPI will become more pronounced. However, concerns have also been raised that persistent risk factors such as the continued weakness of the Korean won could limit the domestic stock market's rebound.

On the 13th, one day before the impeachment vote, the domestic stock market, which had been rising for three consecutive days, started with a slight decline. The KOSPI opened at 2473.75 points, down 5.62 points, fluctuating slightly up and down while maintaining a stable trend, and the KOSDAQ rose slightly. The won-dollar exchange rate also fluctuated slightly up and down, remaining in the 1430 won range. Stock prices, exchange rates, and other indices are displayed in the dealing room at the Hana Bank headquarters in Euljiro, Seoul. Photo by Heo Young-han

According to the Korea Exchange on the 15th, the KOSPI index closed at 2,494.46 on the 13th, up 12.34 points (0.50%) from the previous trading day. The KOSPI moved like a roller coaster last week. The first impeachment vote against President Yoon Seok-yeol on the 7th was rejected due to insufficient quorum, causing political uncertainty to act as a threat to the KOSPI. As a result, the KOSPI fell to an intraday low of 2,360.18 on the 9th, marking the lowest point of the year.

Fortunately, institutional investors stepped in as rescuers. After the market opened, institutions monitored the market flow and defended the index by net buying before the market closed. As the strong selling pressure from foreigners and institutions eased, the KOSPI recovered to the closing level before the emergency martial law situation (3rd, 2,500.10).

Experts expect the rebound trend in the stock market to continue as the first hurdle of impeachment has been passed and uncertainty has been somewhat resolved.

Lee Kyung-min, a researcher at Daishin Securities, said that the KOSPI had shown differentiated weakness due to domestic demand instability, lack of internal momentum, and added political uncertainty, but once the political uncertainty clearly eases, the previously suppressed reversal of the KOSPI is expected to become more distinct.

He added, "Especially next week, with the release of real economy indicators such as retail sales and industrial production in China (16th) and the U.S. (17th), we can reconfirm the still robust U.S. economy along with the recovery trend in China’s economy. After the December Federal Open Market Committee (FOMC) meeting on the 19th, there is a high possibility that market relief regarding the U.S. interest rate cut cycle will flow in. Moreover, the seasonal supply and demand in December (foreigners buying futures, institutions buying programs) is expected to continue and strengthen until the end of the year."

For these reasons, he recommended responding with buying even if there are short-term fluctuations during the KOSPI’s attempt or settlement above the 2,500 level.

Park Seok-jung, a researcher at Shinhan Investment Corp., also predicted, "It is difficult for political uncertainty to be completely resolved before the Constitutional Court ruling, but at least the possibility of easing is high."

He added, "Loss of government momentum, social chaos, and the spread of protests may negatively affect investment sentiment in consumer stocks and existing leading stocks, but the disappearance of the possibility of additional martial law and the process of political risk mitigation will increase the attractiveness of the lowered valuations. A rapid recovery is expected after the Constitutional Court ruling."

KOSPI Expected to Recover to 2,600 Level Seen at the Beginning of the Year... Exchange Rate Rise Poses Burden on Stock Market

With the presidential impeachment motion passing the National Assembly, the recent price merit has been highlighted, and opinions have been raised that the domestic stock market will continue its index rebound.

Lee Jae-man, a researcher at Hana Securities, said, "The 2024 Morgan Stanley Capital International (MSCI) dollar-denominated Korea index has fallen by -26% from the year’s high. Excluding past phases such as the global financial crisis, advanced country fiscal crises, the COVID-19 pandemic, and the Federal Reserve’s interest rate hikes, the price adjustment has proceeded sufficiently, with declines ranging from at least -13% to a maximum of -27% from the peak." This implies that there is room for further price increases as the stock price has fallen significantly.

He also advised focusing on sectors expected to see net profit increases next year among those that experienced large declines this year. He said, "Considering the expectation of a Federal Reserve interest rate cut on the 18th, the domestic stock market is expected to rebound mainly in sectors with excessive annual declines but expected net profit growth in 2025. These include semiconductors, banks, software, IT hardware, and defense."

There was also a forecast that the KOSPI would recover to the 2,600 level, which was seen at the beginning of the year.

Kim Sang-hoon, a researcher at KB Securities, said, "Although a rally may be difficult, if uncertainty is resolved, the market will stabilize and is likely to move toward the original level of 2,600 points."

Researcher Lee Jae-man also said, "It seems possible for the KOSPI to recover to the 2,600 level seen at the beginning of the year."

However, the recent rising pressure on the won-dollar exchange rate is acting as a burden on the stock market. As the won continues to weaken, foreigners concerned about exchange losses are withdrawing from the domestic stock market. Foreigners net sold 914.6 billion won in the securities market from the 1st to the 13th of this month.

Kim Sung-no, a researcher at BNK Investment & Securities, said, "After the martial law situation, the country’s credit rating, won-dollar exchange rate, and the possibility of foreign withdrawal are negative factors. The won-dollar exchange rate is expected to be influenced by the speed of the U.S. interest rate cuts, but since foreigners continue to sell in the stock market, it is likely to remain in the 1,400 won range for the time being."