"After Impeachment Passage... Stable Trends Expected in Platform, Bio, and Entertainment"

Korea Investment & Securities Report
Response Considering Interest Rate Decline and Economic Slowdown

As political uncertainty that shook the market over the past two weeks has been resolved, advice has emerged to focus on industries that are less sensitive to interest rate declines and economic sluggishness.

On the 16th, Kim Dae-jun, a researcher at Korea Investment & Securities, stated in a report titled "Time for Recovery, Importance of Industry Selection," "It is necessary to consider the decline in interest rates and economic slowdown," adding, "Attention will continue to focus on industries that are less sensitive to low interest rates and economic changes. Following last week, this week is also likely to see concentrated interest in platform, bio, and entertainment-related stocks."

He elaborated, "Looking at the recent market, industries that performed well had issues supporting stock price increases. The economic flow and individual factors were not unfavorable. This trend will not change."

He expected the political uncertainty that pressured the stock market over the past two weeks to ease. He explained, "The system of the Republic of Korea, which had temporarily stopped due to the passage of the National Assembly's presidential impeachment motion, will start working again," adding, "Of course, the market had already reflected some expectations before that. The KOSPI volatility index (VKOSPI) has been declining slowly since December 9, and the credit default swap (CDS) premium showed limited increases, supporting this."

However, he advised that it is too early to be complacent and that it is important to respond quickly to changes that will appear in the market. This is because the economic outlook has worsened due to the recent situation. He pointed out, as a representative example, that South Korea's growth rate forecast has been partially revised, noting, "The consensus maintains this year's growth forecast at 2.2%. However, the growth forecast for next year dropped from 2.0% to 1.8% in December alone. It is important to remember that the stock market tends to move in the same direction as the economy over the long term."

As a result of the spread of negative views on the economic flow, market interest rates are also showing a downward trend. Due to the economic impact caused by the external shock of politics, interest rate levels have fallen further. For example, the 3-year government bond yield recorded 2.541%, and the long-term 10-year bond yield was 2.676%.

Market interest rates are expected to remain low for the time being. Researcher Kim said, "There is a possibility that the Federal Open Market Committee (FOMC) of the U.S. Federal Reserve will announce a base rate cut decision this week, so market interest rates may weigh more toward the downside," adding, "Despite recent U.S. economic indicators, the Fed is likely to choose a base rate cut. The futures market is also anticipating this outcome."