[Good Morning Market] KOSPI Expected to Move in a Range... Respond with Sector Rotation Strategy

On August 19, the KOSPI is expected to move within a narrow range.

On the previous day, the Dow Jones Industrial Average at the New York Stock Exchange (NYSE) closed at 44,911.82, down 34.30 points (0.08%) from the previous session. The S&P 500 Index ended at 6,449.15, down 0.65 points (0.01%), while the Nasdaq Composite finished at 21,629.77, up 6.80 points (0.03%).

The New York stock market closed mixed, lacking a clear direction throughout the session. This was due to several factors: optimism over potential progress in Russia-Ukraine ceasefire negotiations following a summit between the United States, Ukraine, and the European Union; caution ahead of the upcoming Jackson Hole meeting later in the week; and a wait-and-see attitude regarding earnings reports from major retailers such as Walmart and Home Depot.

President Donald Trump of the United States expressed his intention to end the war, stating that a trilateral meeting among the United States, Russia, and Ukraine would be held following his talks with President Volodymyr Zelensky of Ukraine. While the level of geopolitical tension between Russia and Ukraine has eased, some analysts note that, given the interests involved, it is necessary to consider the possibility of a prolonged conflict rather than an early end to the war.

The previous day, the Korean stock market saw key sectors such as semiconductors, biotechnology, and secondary batteries weaken simultaneously. This was due to a combination of factors: a shock from the U.S. Producer Price Index (PPI), concerns over Trump's plans to strengthen tariffs on semiconductors and steel, and uncertainty surrounding Korea's domestic tax reform proposal. As a result, the KOSPI fell by 1.5% and the KOSDAQ by 2.1%, both ending the session with sharp declines of over 1%.

Today, even if technical buying emerges following the previous day's sharp drop, the rebound is expected to be limited due to ongoing uncertainties such as the Jackson Hole meeting and delays in reaching a conclusion on the tax reform proposal. Currently, the KOSPI has been fluctuating around the 3,200 level for over a month without finding a clear direction, and compared to other Asian markets such as Japan, China, and Taiwan, it appears to be lagging behind.

Some market participants are expressing concerns that this marginalization of the Korean stock market could accelerate the outflow of foreign capital as upward momentum wanes. However, experts explain that this is largely a "speed adjustment" following the KOSPI's record rally of +35% from January to July. In contrast, Japan (+3%), China (+7%), and Taiwan (+2%) are experiencing an August rally as they make up for their lackluster performance in the first half of the year.

Therefore, analysts argue that it is premature to interpret the recent weakness in the Korean stock market as a shift to a downward trend or as a sign that the market has peaked. Key fundamentals remain intact, including expectations for a U.S. Federal Reserve rate cut in September and a projected earnings turnaround for Korea's major sectors in the third quarter. In addition, although there are delays in reaching a conclusion on the tax reform proposal, there is a strong possibility that a more market-friendly compromise will be developed, given the political sector's commitment to supporting the stock market.

Han Ji-young, a researcher at Kiwoom Securities, advised, "Although uncertainties such as this week's Jackson Hole meeting and President Trump's announcement on semiconductor tariffs remain, it is more reasonable to view the market as moving within a range rather than assuming a downward trend. It is advisable to respond with a sector rotation strategy."