[Market ING] KOSPI Undergoing a 'Healthy' Correction... Focus on Q2 Earnings Season

KOSPI Weekly Forecast Band: 2,900 to 3,130
Market Focus Shifts to Second-Quarter Earnings Season

The KOSPI, which had been racing toward the 3,100 mark without hesitation, has shown signs of a temporary pause. As the KOSPI is expected to undergo a period of digesting supply for the time being, the market's attention is likely to shift to the upcoming second-quarter earnings season.

Yonhap News Agency

Last week, the KOSPI rose by 1.13%, while the KOSDAQ fell by 1.26%. Early in the week, the KOSPI surged past the 3,100 mark on news of a ceasefire between Israel and Iran, but later declined to the 3,050 range as profit-taking sales emerged. Lee Kyungmin, a researcher at Daishin Securities, explained, "The KOSPI broke through the 3,100 level in one go during the week due to expectations for Lee Jaemyung administration policies, the disappearance of geopolitical risks, and strengthened expectations for a U.S. rate cut. However, towards the end of the week, volatility increased due to profit-taking, causing the KOSPI to fall below 3,100."

Some analysts view this correction as a healthy adjustment. Na Jeonghwan, a researcher at NH Investment & Securities, said, "As the KOSPI quickly entered the 3,000 range, some profit-taking occurred, but this is considered a healthy correction." He added, "A positive factor is the possibility of foreign capital inflows after the confirmation of policy implementation, as well as the presence of standby funds from individual investors who are entering the market due to the strength of the Korean stock market." He continued, "With abundant liquidity surrounding the stock market, stock prices are likely to see sector- and stock-specific rallies driven by policy momentum." NH Investment & Securities presented a projected KOSPI band of 2,900 to 3,130 for this week.

As the second-quarter earnings season approaches this year, market attention is expected to focus on corporate results. Kang Jinhyuk, a researcher at Shinhan Investment & Securities, said, "As the earnings season draws near, attention will shift back to profits," and added, "During the process of the market evaluating whether prices are appropriate relative to earnings, additional selling pressure may be triggered."

The researcher stated, "Currently, the KOSPI is above the 2,970 to 3,000 range, which is considered the first stage of valuation normalization, so fundamental momentum that exceeds expectations is now needed." He continued, "However, the second-quarter earnings season is expected to stimulate a sense of scrutiny and caution. Sectors such as finance, holding companies, nuclear power, construction, shipbuilding, and defense, which surged on policy expectations, may enter a phase of adjustment between expectations and reality as the second-quarter earnings season unfolds."

This week's key events include the release of China's June National Bureau of Statistics Manufacturing Purchasing Managers' Index (PMI) on June 30, Korea's June export data, the U.S. June Institute for Supply Management (ISM) Manufacturing Index, and China's June Caixin Manufacturing PMI on July 1. On July 2, the U.S. June ADP employment numbers will be released, followed by the U.S. June employment report and the U.S. June ISM Services Index on July 3.

The researcher noted, "With the U.S. employment report scheduled for release on July 3, the June unemployment rate is expected to rise slightly to 4.3% from 4.2% the previous month, and nonfarm payrolls are forecast to decrease to 122,000 from 139,000 last month." He added, "If investment by companies is dampened due to tariff concerns and the economic downturn is reflected in employment indicators, pressure for a rate cut could intensify. However, if the data prove more robust than expected, it is important to note that previously anticipated rate cut expectations may recede." He continued, "The U.S. ISM Manufacturing Index and Korea's export data, both to be released on July 1, could boost expectations for domestic corporate earnings."