[Market ING] KOSPI Recovers 2,600; Short-Term Correction Possible on Profit-Taking

Weekly KOSPI Forecast Band: 2,550 to 2,690

With the KOSPI recovering the 2,600 level, attention is focused on whether the upward trend will continue this week (May 19-23). As foreign investors gradually return to buying, expectations are rising for a further increase in stock prices. However, given the recent rally in the stock market, there is also a possibility of short-term fluctuations due to profit-taking.

Yonhap News Agency

Last week, the KOSPI rose by 1.92%, while the KOSDAQ gained 0.35%. Kang Jin-hyuk, a researcher at Shinhan Investment Corp., said, "Last weekend, the first round of U.S.-China negotiations took place, and with the postponement of high tariffs, the U.S. will lower tariffs on Chinese goods from 145% to 30% for the next 90 days, while China will reduce tariffs on U.S. goods from 125% to 10%. In addition, during U.S. President Donald Trump's Middle East tour, news that Nvidia and AMD signed AI chip contracts with Saudi Arabia and the United Arab Emirates (UAE) boosted their shares, helping the Philadelphia Semiconductor Index recover its 200-day moving average," he explained. "This positive momentum led to strength in domestic semiconductor stocks as well, but the overall index gains were limited by news that the U.S. House of Representatives introduced a bill to phase out the Inflation Reduction Act (IRA) electric vehicle tax credit, causing secondary battery stocks to underperform."

Foreign investors have resumed net buying for the first time in a while, helping the KOSPI recover the 2,600 level. Foreign investors have recorded net purchases for eight consecutive trading days. Na Jeong-hwan, a researcher at NH Investment & Securities, said, "After the U.S.-China mutual tariff suspension agreement, we have observed net buying by foreign investors in the main stock market. Last week, foreign investors were net buyers in the semiconductor, shipbuilding, defense, and cosmetics sectors, in that order. This is interpreted as reflecting expectations for AI infrastructure expansion following Saudi Arabia's purchase of U.S. AI technology."

Lee Kyung-min, a researcher at Daishin Securities, said, "The easing of U.S. tariff uncertainty, which had been exerting downward pressure on the market, is happening alongside a slowdown in inflationary pressure. At the same time, non-U.S. economies continue to pursue stimulus policies. The strengthening of the Korean won and the shift to net buying by foreign investors will also add momentum to the KOSPI's rebound."

However, given the recent rally, a short-term correction may occur. Researcher Kang said, "With the KOSPI rising for five consecutive weeks, the overbought condition is becoming prolonged, which is a burden. Institutional investors are engaging in profit-taking, so a pause in the rally may occur. However, as foreign buying continues, if this trend is sustained, the downside is likely to be supported."

Researcher Na said, "After the U.S.-China tariff risk eased, stock prices have risen rapidly in a short period, so there is a possibility of profit-taking. With U.S. stock prices also rising quickly, short-term profit-taking sentiment may strengthen. In the event of a short-term correction, a strategy to increase exposure to AI-related sectors, which are expected to benefit from a recovery in AI momentum, would be effective." NH Investment & Securities presented a forecast band for the KOSPI this week of 2,550 to 2,690.

While short-term fluctuations may occur, some analysts believe the KOSPI remains attractive in terms of valuation. Researcher Lee said, "There may be short-term fluctuations due to fatigue from the uninterrupted V-shaped rebound since mid-April. However, the KOSPI's valuation remains attractive, with the 12-month forward price-to-earnings ratio (PER) at 8.94 times, just above the -1 standard deviation from the three-year average, as it continues to align with global market valuations."

Shin Seung-jin, a researcher at Samsung Securities, also commented, "Since the low point in April, the KOSPI has risen by more than 15% in about a month, fully recovering the losses from the previous sharp decline. Because the rebound has been so rapid, the market may pause temporarily. However, the KOSPI remains one of the most undervalued major global markets, with both stock valuations low and the Korean won in a historically weak range. If the resolution of tariff uncertainty leads to a recovery in exports, resulting in improved corporate earnings and a stronger won, the Korean stock market will inevitably become attractive to foreign investors."

This week, key scheduled events include the release of the U.S. April Conference Board Leading Economic Index, as well as China's April retail sales, industrial production, and fixed asset investment on May 19. On May 20, Korea's export figures for May 1-20 will be announced, and on May 22, the U.S. May S&P Global Purchasing Managers' Index (PMI) will be released.