Korea Investment & Securities: Weakened Momentum in Korean Stock Market... Focus on Currency-Exposed Gold ETFs

As the upward momentum of the domestic stock market has clearly weakened, analysts in the securities industry have suggested that gold spot-based investments could serve as a meaningful alternative. Given the outlook for a weaker dollar, they recommend a strategy that utilizes domestic gold exchange-traded funds (ETFs) with currency exposure structures.

On August 7, Park Kihun, a researcher at Korea Investment & Securities, stated in his report "A Comfortable Choice: Gold," that "there are persistent burdens on the domestic stock market from all aspects, including the macro environment, earnings, and both domestic and external uncertainties."

First, Park noted that although the domestic stock market has recovered much of its losses after a brief correction, "it is positive that foreign investors are still maintaining a net buying trend." However, he also pointed out that "the intensity of buying has weakened, and trading volume has noticeably decreased. It will be difficult to expect clear upward momentum in the domestic stock market for the time being."

He also diagnosed that market uncertainty has increased. Park said, "The macro environment is challenging. In the United States, concerns about an economic slowdown are resurfacing," and added, "Earnings momentum is also weak." He continued, "There is about a week left in the second-quarter earnings season. Given that the upward revision of corporate earnings estimates continues to slow, there is a high possibility that earnings expectations will be quickly exhausted."

In particular, there are numerous domestic and international events scheduled for August that could increase uncertainty. Park explained, "In Korea, the opening of an extraordinary session of the National Assembly could heighten political uncertainty surrounding the Yellow Envelope Act, the second amendment to the Commercial Act, and tax reform proposals." He continued, "Externally, the United States will begin to implement reciprocal tariff measures in earnest. As negotiations between the United States and some trading partners remain unresolved, tariff burdens on items such as semiconductors and pharmaceuticals could also become variables." Next week, the US-China trade negotiations and the South Korea-US summit are also scheduled to take place.

Park stated, "At a time when market direction is uncertain and both domestic and external events are widespread, portfolio adjustments for the purpose of volatility mitigation and risk management are necessary," presenting gold as a "meaningful alternative." He added, "Since this approach prioritizes stability over short-term trading, spot-based investments are more suitable than gold futures. A strategy utilizing domestically listed gold ETFs with currency exposure, rather than currency-hedged products, would be advantageous."