[Click eStock] "Korean Stock Market, Global Market Sensitivity ↓... Securing Downside Rigidity"

As the Korean stock market has secured downside rigidity by showing low sensitivity to the global stock market, securities firms predict that stock prices will gradually rise when political uncertainties are resolved and concerns about earnings ease.

On the 13th, Kwon Soon-ho, a researcher at IBK Investment & Securities, stated, "When a decoupling trend from the global stock market appears, the range of expected returns can be greater than the downside risk."

Since the end of last year, the domestic stock market has recorded historically low levels not only in valuation (price level relative to corporate value) but also in sensitivity to major countries' stock markets such as the U.S. and China. This was due to poor performance caused by ▲policy caution related to then U.S. President-elect Donald Trump ▲concerns about weakening semiconductor competitiveness ▲domestic political uncertainties.

Recently, the U.S. stock market has been on a downward trend due to fading expectations of interest rate cuts following strong employment data and valuation concerns centered on tech stocks. On the 10th (local time), the U.S. nonfarm payrolls were announced at 256,000, significantly exceeding market expectations of 157,000. China also failed to avoid stock market weakness due to sluggish economic indicators, as the consumer price index (CPI) rose only 0.1% year-on-year after stimulus measures were introduced.

In contrast, the domestic stock market showed a differentiated upward trend, highlighting valuation attractiveness despite the earnings shock from Samsung Electronics. The price-to-book ratio (PBR) of the KOSPI stands at 0.83 times, near a historical low, emphasizing the appeal of buying at the bottom. This decoupling phenomenon is expected to limit the downside risk of the KOSPI index in the short term. Although a weak start is expected reflecting U.S. employment data, further short-term declines are expected to be limited.

Researcher Kwon said, "This week, U.S. CPI and producer price index (PPI), China’s real economy indicators, and last year’s fourth-quarter gross domestic product (GDP) growth rate are scheduled to be announced," adding, "Even if shocks from U.S. inflation or China’s real economy indicators occur amid low sensitivity of the domestic stock market, the downside of the KOSPI will be limited."

However, the potential for additional short-term gains is expected to be limited. This is because earnings forecasts for domestic companies are being revised downward, and political uncertainties remain. In 2012 and 2016, the market showed strength due to expectations of a new government launch, and in 2017, due to expectations of a semiconductor boom. Researcher Kwon noted, "Cases where additional rebounds were large in the past were accompanied by policy expectations or growth momentum expansion expectations due to industrial profits."

Meanwhile, regarding the JP Morgan Healthcare Conference opening today, it is necessary to prepare for 'profit-taking selling pressure.' Researcher Kwon said, "From 2017 to last year, the market rose for two weeks before the conference opening, followed by profit-taking selling pressure starting on the opening day," adding, "The healthcare sector has risen 7% in the past two weeks, outperforming the KOSPI (4.6%). It is recommended to respond focusing on individual stocks rather than the sector."