[Market ING] KOSPI Rises for Four Consecutive Weeks, Eyes Recovery of 2,600 Level

Weekly KOSPI Forecast Band: 2,480 to 2,650

Uncertainties such as tariff risks are gradually easing. The KOSPI has risen for four consecutive weeks and is moving toward recovering the 2,600 level. This week (May 12-16), the market is expected to focus on the progress of trade negotiations between the United States and China, as well as U.S. inflation indicators.

Yonhap News

Last week, the KOSPI rose by 0.68% and the KOSDAQ by 0.09%, respectively. Kang Jin-hyuk, a researcher at Shinhan Investment Corp., stated, "Last week, signals of easing trade uncertainty stemming from tariffs began to emerge, creating a more conciliatory environment." He added, "The ministerial-level meeting between the U.S. and China can be seen as meaningful progress, and with the United Kingdom announcing the first agreement among major negotiating countries, expectations have grown that tariff-related noise will gradually subside." He continued, "Optimism about the negotiations led to the strengthening of currencies such as the yuan and the Taiwan dollar, and the won-dollar exchange rate fell below 1,400, creating a favorable environment for foreign capital inflows."

The market is expected to be influenced by the progress of the trade negotiations. On May 10 (local time), the United States and China held high-level trade talks in Geneva, Switzerland. This was the first time since the launch of the second Trump administration that ministerial-level officials from both countries met face-to-face to discuss current issues. The first day's meeting ended after 10 hours and is scheduled to resume from May 11. The first day's session was held behind closed doors, with even the opening statements of the chief delegates not disclosed. President Trump stated on the social media platform Truth Social, "We had a very good meeting with China in Switzerland today. Many issues were discussed and many agreements were reached."

Lee Kyung-min, a researcher at Daishin Securities, said, "The global financial market is inevitably sensitive to the progress and outcomes of trade negotiations among major countries, including China." He added, "In this U.S.-China high-level meeting, both countries are in a situation where negotiations are necessary to reduce economic damage, but the initial talks are likely to remain at the level of exploration and easing tensions. As with the first Trump administration, a lengthy negotiation process is expected before a summit can take place. While it is clear that the conflict has entered a phase of risk mitigation, market sentiment will inevitably fluctuate with each negotiation issue until a final outcome is confirmed." Researcher Kang said, "The significance of the U.S.-China ministerial meeting lies more in the contact itself than in dramatic results, and if additional trade agreements are announced with major trading partners, overall investor sentiment could improve."

There are also opinions that attention should be paid to the supplementary budget (extra budget) this week. Na Jeong-hwan, a researcher at NH Investment & Securities, said, "This week, U.S. economic indicators such as the April Consumer Price Index (CPI) and retail sales will be released, but since these figures do not fully reflect the impact of tariffs, their influence will be limited." He continued, "Instead, a factor that could affect stock prices is Korea's supplementary budget policy. The government plans to swiftly execute 12 trillion won out of the 13.8 trillion won supplementary budget by July, including 1.6 trillion won for small business support, 1.4 trillion won for revitalizing local economies, and 1.8 trillion won for artificial intelligence (AI) innovation. We maintain a positive outlook on the distribution and food & beverage sectors due to expectations for a recovery in domestic demand." NH Investment & Securities presented a KOSPI forecast band of 2,480 to 2,650 for this week.

There is also a possibility that profit-taking may occur as the KOSPI enters overbought territory. Researcher Kang said, "The KOSPI remains in an overbought state according to technical indicators such as the Relative Strength Index (RSI) and the Advance-Decline Ratio (ADR). The RSI stands at 90.1, the highest level in four years since April 20, 2021 (93.7), and the ADR has exceeded 145%, surpassing 140% for the first time in about two years since February 2, 2023." He added, "While the KOSPI is overcoming tariff shocks and experiencing a short-term rally, the extended duration of the overbought phase is notable. Although positive factors such as easing trade risks are being reflected, the possibility of profit-taking should also be kept in mind."

This week’s key events include the release of the U.S. April Consumer Price Index (CPI) on May 13. On May 14, the results of the MSCI regular review will be announced. On May 15, U.S. April retail sales, Producer Price Index (PPI), and industrial production figures will be released, along with a speech by Jerome Powell, Chair of the U.S. Federal Reserve. On May 16, the University of Michigan's May consumer sentiment index will be published.