[Real Investment Strategies] Will the KOSPI Break Its Previous High in August?

Adjustment Expected to Continue in August
Impact of Disappointing Q2 Earnings and Tariff Negotiations
Second Upward Trend Likely After Supply Overhang is Digested in Q3

Attention is focusing on whether the KOSPI, which has steadily set new yearly highs this month, will be able to break through its previous all-time high in August. The KOSPI’s previous closing high was 3,305.21, recorded on July 6, 2021. Experts predict that after digesting the current supply overhang through the third quarter, the index is likely to enter another upward phase.

According to the Korea Exchange on the 30th, the KOSPI closed at 3,230.57 on the previous day, up 0.66%, setting another yearly high. After fluctuating around the 3,200 level for some time, the KOSPI has now risen for five consecutive sessions, firmly establishing itself above 3,200.

The KOSPI has risen by more than 5% so far this month. However, compared to last month, the pace of gains has slowed significantly, and it appears unlikely that there will be a sharp increase in August. Even this month, after setting a yearly high on the 15th, the index showed a period of stagnation for some time.

There are projections that the adjustment phase for the KOSPI will continue in August. Kim Suyeon, a researcher at Hanwha Investment & Securities, analyzed, "In June, the KOSPI rose by 13.9%. When a stock index rises by more than 10% in a month, it means the market's energy level is very high. As a result, it is common for the market not to use up all its energy in just one month, and to continue expending it into the next month. From July 1 to July 28, the KOSPI rose by 4.5%, which is 9.4 percentage points lower than the increase in June." Kim added, "While market sentiment remains positive, the adjustment trend is expected to become more pronounced in August."

There is not only a pause after significant gains, but also the surrounding conditions are not favorable for further increases. First, companies are announcing their second quarter earnings, but the results are falling short of expectations. According to Hanwha Investment & Securities, as of the 28th, 68 KOSPI-listed companies with second-quarter consensus estimates have reported their results, and their second-quarter operating profits are 7.1% below estimates based on the consensus at the end of June. Kim noted, "Large-cap companies’ operating profits fell 7.3% short of consensus, while small and mid-cap companies’ operating profits were 2.0% lower than consensus. The earnings of major export-oriented large caps, which have high index contribution, were weaker than market expectations. Unless August earnings change the sentiment seen in July, it seems unlikely that the KOSPI will find additional upward momentum."

In particular, the reciprocal tariffs taking effect from the first day of August are expected to impact the stock market in early August. Although concerns have eased as major countries have concluded tariff negotiations one after another, South Korea is still in the midst of negotiations, so the outcome needs to be watched. Park Sanghyun, a researcher at iM Securities, explained, "Major stock markets, led by the United States, are rallying to all-time highs, so the tariff negotiations between the European Union (EU) and South Korea were expected to be a key turning point for the rally. However, with the EU negotiations concluded, much of the concern about a tariff shock in early August has been alleviated. Still, caution is warranted for the domestic market. The outcome of the tariff negotiations must be monitored, as it will determine whether stock prices continue to rise or adjust, and will also have a significant impact on the direction of the won-dollar exchange rate." Park added, "If the Korea-US tariff negotiations are delayed, the won-dollar exchange rate is expected to once again surpass 1,400 won."

There are also projections that the KOSPI will resume a second upward trend after fluctuations in the third quarter. Lee Kyungmin, a researcher at Daishin Securities, stated, "Short-term fluctuations, overheating relief, and supply digestion phases in the third quarter should be watched closely. After these fluctuations, the KOSPI is expected to resume its second upward trend." Lee further added, "With the second quarter earnings season as a catalyst, sector rotation could accelerate, so it is necessary to pay attention to sectors and stocks that are undervalued relative to their earnings or have experienced excessive declines."