[MarketING] KOSPI Falls Below 2600 Again... Short-Term Volatility Inevitable

KOSPI Weekly Outlook:
Expected Range 2550 to 2680
Volatility to Remain High Amid Tariff Uncertainty

The KOSPI, which had been maintaining its upward momentum, took a breather but then plunged sharply, breaking below the 2600 level again. This week (March 4-7), attention will focus on whether the KOSPI will rebound, but with investor sentiment weakening, short-term volatility is expected to be inevitable.

Yonhap News

Last week, the KOSPI fell by 4.59%, and the KOSDAQ dropped by 3.96%. The KOSPI, which had been in a consolidation phase following previous gains, declined 3.39% last Friday, marking its largest drop this year and retreating to the 2530 level. The KOSDAQ also fell 3.49%, sliding down to the 740 range. Najunghwan, a researcher at NH Investment & Securities, analyzed, "The trigger for the stock price decline was U.S. President Donald Trump's tariff remarks. President Trump stated that the 25% tariff on imports from Canada and Mexico would start not in April but from the original date of March 4, and additionally announced that an extra 10% tariff would be imposed on top of the existing 10% tariff on Chinese imports. The tariff rate on Chinese imports was expanded beyond market expectations, which caused the stock prices to react more sensitively."

Lee Kyungmin, a researcher at Daishin Securities, said, "There had been a prevailing optimistic view that tariffs were merely a negotiation tool, and the possibility of negotiations before March 4 could not be ruled out. However, the sudden tariff announcement reflected the market's risk-averse sentiment."

With investor sentiment weakening, there is a forecast that panic selling may not be limited to a short period. Kang Jinhyuk, a researcher at Shinhan Investment Corp., said, "The psychology of market participants has become very fragile recently," adding, "As a result, the market has become more sensitive to negative news than positive news." He further explained, "Technically, panic selling occurred as major indices and stocks broke below support levels such as the 50- and 100-day moving averages, and this panic selling may not be short-lived, so caution is necessary."

As tolerance for tariffs weakens, caution regarding increased volatility is expected for the time being. Woo Jiyeon, a researcher at DS Securities, said, "The main reason for the decline is the worsening economic uncertainty due to U.S. tariff policies. With the approaching expiration of tariff exemptions by major countries, President Trump's continuous remarks on tariff hikes have stirred anxiety. Unlike before, the Korean stock market appears to have weakened tolerance toward tariffs. Since U.S. government tariff negotiation events are expected to occur starting this week, it is necessary to be cautious about increased volatility for the time being."

Whether tariff negotiations proceed will likely influence the future direction of stock prices. Researcher Na said, "The future direction of stock prices depends on the responses of the tariff-targeted countries," adding, "If Canada, Mexico, and China respond to U.S. tariff policies with stronger tariffs, there is a possibility of further stock price declines. However, recently, Canada and Mexico have shown willingness to negotiate by strengthening border controls to combat drug trafficking, and China has also shown a willingness to resolve issues through dialogue. Considering this, it is more reasonable to weigh the scenario where tariff concerns are alleviated through negotiations rather than a restart of the 2018 trade war." NH Investment & Securities has projected the KOSPI range for this week to be between 2550 and 2680.

Key events this week include China's February Caixin Manufacturing Purchasing Managers' Index (PMI) on the 3rd and the U.S. February Institute for Supply Management (ISM) Manufacturing Index on the 4th. Additionally, on the 4th, Korea's first Alternative Trading System (ATS), NextTrade, will launch. The Chinese "Two Sessions" (National People's Congress and Chinese People's Political Consultative Conference), the country's largest political events, will be held on the 4th and 5th. On the 5th, the U.S. Federal Reserve's Beige Book will be released, and the European Union (EU) will announce its action plan. On the 6th, the U.S. February ISM Services Index will be released, followed by the U.S. February Employment Report on the 7th.

Researcher Lee analyzed, "At the Chinese Two Sessions, large-scale domestic demand stimulation and economic stimulus measures will be announced, but since expectations have already been priced in, there is a need to be cautious about potential sell-offs due to the fading of these factors. Given the weak results of the National Bureau of Statistics PMI on the 1st and the Caixin PMI on the 3rd, if a pre-adjustment occurs, it could actually lead to a positive interpretation of the Two Sessions' policies." He added, "The U.S. February employment data is expected to be a major turning point. Better-than-expected results could ease economic anxiety, while worse-than-expected results could increase expectations for interest rate cuts."