[Good Morning Stock Market] "Political Instability and Exchange Rates... High Short-Term Volatility in Korean Stock Market"

KOSPI PBR at 0.84 Level
Possibility of Foreigners' Bottom Buying Present

Yonhap News

On the 30th, the last trading day of 2024, the Korean stock market is expected to attempt a rebound but show weakness. Factors such as sluggish trading due to year-end closing and New Year holidays, and the rise in the won-dollar exchange rate pose burdens.

On the 27th (local time), all three major indices in the New York stock market fell. The desire for profit-taking had accumulated, and the aftereffects of the December Federal Open Market Committee (FOMC) meeting influenced the market. The Dow Jones Industrial Average closed at 42,992.21, down 333.59 points (0.77%) from the previous session. The S&P 500 index dropped 66.75 points (1.11%) to 5,970.84, and the Nasdaq Composite Index plunged 298.33 points (1.49%) to 19,722.03.

Big tech stocks such as Tesla (-5.0%), Nvidia (-2.0%), and IonQ (-2.0%) showed notable declines.

Confidence in a rebound in the Korean stock market is not high. On the 27th, the won-dollar exchange rate intraday reached the 1,480 won level. Breaking through 1,480 won is the first time since the 2008 financial crisis. Although authorities intervened to prevent further exchange rate increases, political turmoil raises the possibility of stock market declines and further exchange rate rises.

The fortunate point is that the Kospi’s trailing price-to-book ratio (PBR) has fallen to around 0.84, near its yearly low level of 0.83. From the perspective of foreign investors, this means entering a stage where capital gains from stock price rebounds and foreign exchange gains from the easing of the sharp rise in the exchange rate can be considered.

Han Ji-young, a researcher at Kiwoom Securities, said, "This week as well, the continuation of domestic political turmoil and sluggish trading until midweek due to year-end closing and New Year holidays may increase short-term volatility in the stock market," adding, "The focus will be on valuations that have become attractive again, the exchange rate in an overshooting phase, and export-related events."

She added, "From this perspective, it is appropriate to establish a midweek response strategy through phased buying centered on oversold export stocks or interest rate-sensitive stocks (such as biotech)."