[Market ING] Can the KOSPI Stay Above 3,000 Amid Middle East Uncertainty?

The KOSPI has surpassed the 3,000-point mark for the first time in three and a half years. With the KOSPI continuing its upward trend this month except for just one day, attention is focused on how much further it can rise. However, escalating tensions in the Middle East are expected to introduce volatility into the market.

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Last week, the KOSPI rose by 4.40%, while the KOSDAQ climbed by 2.95%. After seven consecutive trading days of gains, the KOSPI showed weakness on the 13th, leading some to expect a period of adjustment to relieve the accumulated fatigue from its steep rally. However, after just a one-day pause, the KOSPI resumed its upward march and broke through the 3,000-point barrier. Lee Kyungmin, a researcher at Daishin Securities, explained, "For the first time since 2022, the KOSPI broke through the 3,000 mark and closed at 3,020. This was due to improved foreign investor inflows, driven by political stability and policy expectations following the launch of the new government. On the 20th, the announcement of the second supplementary budget led to increased buying by foreign investors, and institutions also joined in simultaneous net buying, propelling the KOSPI higher."

Kang Jinhyuk, a researcher at Shinhan Investment Corp., analyzed, "The KOSPI's strength is being driven more by expectations for capital market advancement (PER) than by earnings (EPS). The undervaluation narrative that had trapped the KOSPI in a value trap is now in play, with the 12-month trailing price-to-book ratio (PBR) recovering to 1, and the 12-month forward price-to-earnings ratio (PER) returning to 10."

However, the sustained rally is also increasing pressure for profit-taking. Lee noted, "It is important to remember that the current rally is not based on earnings, but rather on improved investor sentiment. There is growing pressure to realize profits, particularly in sectors and stocks that have surged sharply." He added, "It is advisable to refrain from chasing after sectors that have recently experienced rapid gains, such as finance, holding companies, nuclear power, construction, shipbuilding, and defense. There may be opportunities in underperforming stocks, especially in sectors like semiconductors, internet, pharmaceuticals and biotech, and secondary batteries, which could gain momentum in the second half of the year and during the new government's policy transition."

The heightened tensions in the Middle East over the weekend are expected to put the brakes on the KOSPI's rally. On June 21 (local time), U.S. President Donald Trump announced that the United States had directly struck Iran's nuclear facilities. President Trump stated on his social media platform, Truth Social, "We have completed a very successful attack on three of Iran's nuclear facilities: Fordow, Natanz, and Isfahan." With U.S. military intervention likely to further destabilize the Middle East, market volatility appears inevitable. Notably, the only day this month that the KOSPI recorded a decline was June 13, which coincided with Israel launching airstrikes against Iran.

This week's key events include the release of the U.S. June S&P Global Purchasing Managers' Index (PMI) on the 23rd and the U.S. June Conference Board Consumer Confidence Index on the 24th. On the 26th, the U.S. June durable goods orders will be announced, and on the 27th, the U.S. May personal consumption expenditures and the PCE price index will be released. The NATO summit will also take place in Europe from the 24th to the 25th.

Lee noted, "On the 23rd, S&P Global's manufacturing and services PMIs are scheduled for release, and both indicators are expected to decline compared to the previous month. While the headline figures are important, it will also be crucial to examine subcomponents such as new orders, prices, and employment to assess corporate pricing power and the burden of tariffs and inflation." He added, "The Conference Board Consumer Confidence Index to be released on the 24th rebounded sharply in May following the U.S.-China trade agreement. It will be important to watch whether this rebound continues now that tariff concerns have eased."