[MarketING] KOSPI Maintains Wait-and-See Stance This Week... January Effect?

This week (December 30 to January 3), the domestic stock market is expected to remain cautious due to ongoing political uncertainties and the rise in the won-dollar exchange rate. Market attention is focused on whether the 'January effect,' where the stock market rises in the first month of the new year despite these threats, will appear.

Yonhap News

According to the Korea Exchange on the 29th, last week (December 23-27), the KOSPI index closed at 2404.77, up 0.03% from the previous week. The KOSDAQ index ended trading at 665.97, down 0.35% from the previous week.

Kim Ji-won, a researcher at KB Securities, analyzed after the market closed on the 27th, "Domestically, the market continued a sluggish trend amid unresolved internal and external uncertainties. The political uncertainty expanded ahead of the impeachment vote on Prime Minister Han Duck-soo, who is acting president, putting pressure on the stock market, and the won-dollar exchange rate rose to as high as 1486 won during trading." Additionally, with the dividend cut-off date coinciding, the KOSPI broke below the 2400 level intraday for the first time in a week since the 20th.

This week, it is expected that the cautious stance will continue amid quiet trading due to the year-end holiday closure and ongoing uncertain political atmosphere. The domestic stock market will be open until the 30th and closed on the 31st. Trading will resume at 10 a.m. on January 2 next year.

One of the key indicators to watch this week is Korea's December export-import trends, which are expected to remain robust. This could help ease concerns about KOSPI fundamentals and earnings. Lee Kyung-min, a researcher at Daishin Securities, said, "The 2440-2450 range of the KOSPI corresponds to a 12-month price-to-earnings ratio (PER) of 8.2 and a price-to-book ratio (PBR) of 0.8, reflecting most of the currently priced-in political instability and semiconductor earnings concerns, representing a potential Deep Value zone." He added, "After testing support around this range, a rebound attempt is expected to continue." Recommended sectors to watch include semiconductors, bio, finance, automobiles, and secondary batteries, which are undervalued relative to earnings and have experienced significant declines.

Shinhan Investment Corp. suggested a KOSPI forecast band of 2300-2600 for January and highlighted machinery and shipbuilding as preferred sectors. Kang Jin-hyuk, a researcher at Shinhan Investment Corp., said, "This is a period with persistent political risks and important variables such as U.S. tariffs and Chinese policies. A V-shaped rebound is unlikely, but since the market is in a deep valuation zone, further downward revisions of estimates may be controlled." He also noted a preference for software, utilities, securities, and telecommunications domestically, while favoring machinery and shipbuilding in exports as industrial goods.

Advice was also given to adopt differentiated strategies between the U.S. and domestic markets. Lee Jae-man, a researcher at Hana Securities, said, "Differentiated strategies are necessary for the U.S. and domestic stock markets. The U.S. market has high return on equity (ROE) and return on invested capital (ROIC), but dividend yields are relatively low compared to 10-year Treasury yields. It is effective to increase exposure to companies with high free cash flow (FCF) relative to market capitalization and high ROIC (and rising ROE)." He added, "Conversely, the domestic market has absolutely low ROE and ROIC. However, the number of shares in the KOSPI, which had surged, is showing some decline. It seems more advantageous to increase exposure to companies with high ROE, high FCF relative to market capitalization, and high shareholder return rates such as share buybacks and cancellations."

Samsung Securities identified key variables for the January stock market as △ U.S. inflation, △ quality assessment of Korean corporate earnings forecasts, and △ policies of the U.S. and Chinese governments. Regarding U.S. inflation, Yang Il-woo, senior researcher at Samsung Securities, explained, "Since the Trump administration's tariffs and immigration policies are widely expected to increase inflationary pressure, if inflation rises before the inauguration, market concerns may increase."

Regarding Korean corporate earnings, he said it is important to observe whether the downward trend in earnings revisions continues rather than the earnings momentum itself. Yang said, "Historically, Korean companies' Q4 earnings often fall short of market expectations, so earnings forecast adjustment momentum tends to be weak overall in January and February. Earnings momentum also tends to lag stock prices significantly, so a slowdown in earnings momentum does not necessarily lead to stock price declines." He added, "Therefore, attention should be paid to whether downward revisions will continue rather than the earnings momentum itself."

Finally, he emphasized watching for any remarks by U.S. President Trump on January 20 next year, the date of his inauguration. Yang noted, "If he mentions anything beyond the already anticipated repeal of the Inflation Reduction Act (IRA), tariffs on Mexico, Europe, and China related to automobiles, or illegal immigrant deportations, it could impact the stock market."