[Inside Chodong] The Year-End Domestic Stock Market Hit by a Comprehensive Set of Negative Factors

'Santa Rally' Disappears Amid Stock Market Downturn
U.S. Interest Rate Uncertainty Adds to Woes
Financial Authorities Must Seek Active Solutions

Christmas is just around the corner. It is the time when children eagerly await Santa Claus. Santa also visits the stock market. This is called the 'Santa Rally.' It refers to the year-end rise in the stock market.

This year, Santa did not come to the domestic stock market. With only five trading days left until the year-end close, the expectation that Santa will come seems futile. Every year, there are uncertainties that affect the stock market, but this year there were particularly many uncertainties and significant shocks to the market.

The KOSPI, which was close to the 2700 level at the beginning of the year, has now fallen to a level where the 2400 mark is threatened. A six-month consecutive decline appears almost certain. The domestic stock market has recorded a six-month consecutive decline only twice before: during the 2000 IT bubble and the 2008 global financial crisis. The domestic market has experienced a five-month consecutive decline from July to last month, the longest downturn since July-November 2021 during the COVID-19 period. The longest decline period for the KOSPI was seven months from June to December 1997 during the International Monetary Fund (IMF) foreign exchange crisis. When the market showed prolonged declines in the past, it was during major global events that shook the world. This year, there was the U.S. presidential election, and global markets fluctuated due to concerns over U.S. interest rate paths and the global economy. In particular, the sudden declaration of martial law followed by the impeachment crisis completely blocked Santa’s visit. Just as political uncertainty seemed to ease with the impeachment approval, concerns over U.S. interest rates again hindered market gains. One securities firm forecasted that the year-end market would pass through a period dense with negative factors, making a rebound difficult. Instead of Santa, the market received a comprehensive set of bad news.

The KOSPI, which was struggling around the 2400 level, opened higher on the 23rd at 2423.36 points, up 19.21 points (0.80%), starting strong along with the KOSDAQ. The USD/KRW exchange rate slightly fell below the 1450 won level. Various indices are displayed in the dealing room of Hana Bank in Euljiro, Seoul. Photo by Heo Young-han

There is no savior to rescue the market from this crisis. Individual investors, who played a leading role in overcoming the crisis by massively buying domestic stocks during the COVID-19 period, are gradually turning their backs on the domestic market.

The value-up strategy that lifted the market from early-year weakness has lost momentum. Concerns arose over the loss of policy-driving force due to martial law and impeachment. The government’s tax reform plan, which would have reduced dividend income tax through separate taxation for shareholders of companies with excellent dividends and provided corporate tax cuts for companies increasing shareholder returns, failed to pass in this year’s regular National Assembly session, causing the value-up tax incentives to collapse.

There is no leading stock either. Semiconductor stocks are weighed down by ongoing concerns over Samsung Electronics’ poor earnings, and recently, U.S. memory semiconductor company Micron’s forecast for next year’s earnings fell far short of market expectations, causing stock prices to fluctuate again. Secondary batteries, which emerged as another leading stock driving last year’s market rise, have been powerless this year due to weak demand in the supply chain and concerns over electric vehicle subsidy cuts following Trump’s election.

The only support the market can currently rely on is the government’s 10 trillion won scale Stock Market Stabilization Fund (증안펀드), but it is unlikely to be activated immediately. Financial authorities introduced the stabilization fund card to stabilize the market amid increased uncertainty caused by martial law and impeachment. However, the authorities plan to observe the market’s autonomous recovery first and intervene only if a panic situation arises.

The difficult times for the stock market are expected to continue until the political situation is resolved. It is said that the darkest hour is just before dawn. We hope that after enduring this dark period, a bright day will come for the domestic stock market. However, we cannot just wait passively. The government must actively seek ways to revive the market.