[Market ING] KOSPI is Passing Through a Cluster of Negative Factors

Weekly KOSPI Expected Band 2390~2510 Range

As political uncertainty eased following the approval of the impeachment, the KOSPI, which was expected to rebound, has once again slipped to a precarious level around the 2400 mark. With various negative factors piling up, it seems difficult to expect a rebound this week (December 23-27) as well.

Yonhap News

Last week, the KOSPI fell by 3.62% and the KOSDAQ by 3.66%. Jinhyuk Kang, a researcher at Shinhan Investment Corp., explained, "The market was sluggish as the US shock added before the political risk had settled down. The market, which rebounded after the presidential impeachment motion was passed last weekend, gave up its gains due to concerns over interest rates. The US Federal Open Market Committee (FOMC) cut interest rates by 25 basis points (1bp=0.01 percentage point) as expected by the market, but volatility increased as uncertainty over next year’s interest rate path grew due to inflation concerns." He added, "In addition, Micron’s next quarter guidance shock worsened investor sentiment toward major semiconductor stocks. Along with the rebound in government bond yields, the won-dollar exchange rate surpassed 1450 won for the first time in about 15 years and 9 months since March 2009."

There is a forecast that the negative impact of the US FOMC will gradually subside. Kyungmin Lee, a researcher at Daishin Securities, said, "The bond yields and dollar level-up indicate that the financial market is preemptively reflecting an excessively hawkish stance on US monetary policy. Although aftershocks from the sharp increase in volatility are inevitable, the influence and ripple effects as negative factors will gradually ease."

In particular, it is expected that a wait-and-see mood will deepen this week due to the Christmas holiday closure. Researcher Kang said, "Ahead of the US Christmas holiday, a cautious sentiment is expected to appear. Since there are no major Chinese policy events or key economic indicator releases, it is unlikely that a clear market direction will emerge."

Although the stock market is passing through a period dense with negative factors, there is an analysis that the price merit of the KOSPI has increased. Younghwan Kim, a researcher at NH Investment & Securities, said, "This is a period where multiple negative factors such as high interest rates, high exchange rates, US political and policy uncertainties, and semiconductor industry downturns are concentrated. However, the price merit of the KOSPI has clearly increased, so it is a period where a split buying strategy is necessary in case of further declines." He added, "In terms of sector selection, it is necessary to pay attention to domestic consumption stocks and dividend stocks that can preemptively reflect short-term expectations for an early domestic presidential election." NH Investment & Securities projected the KOSPI’s expected band for this week to be between 2390 and 2510.

Bond yields and exchange rate stability are expected to determine foreign investor demand and the momentum of the KOSPI rebound. Researcher Lee said, "In December, every time the KOSPI tries to rise due to inflows from foreign investors in spot and futures markets, political events and the FOMC have repeatedly dampened the market, causing foreign investors to withdraw again. Whether bond yields and the dollar stabilize will decide foreign investors’ spot and futures demand and the momentum of the KOSPI rebound."

Key schedules for this week include the release of the US Conference Board Consumer Confidence Index and durable goods orders for December on the 24th. On the 24th, the US stock market will close early for Christmas Eve, and both Korea and the US will be closed on the 25th for Christmas.