[Market ING] KOSPI Falls Below 3,400; Wait-and-See Sentiment Expected Ahead of Holiday

The KOSPI has reversed its trend and turned downward for the first time in five weeks. On September 26, the KOSPI plunged by over 2%, falling below the 3,400 mark for the first time in 10 trading days. With the long Chuseok holiday approaching, the market is expected to remain in a wait-and-see mode.

Yonhap News Agency

Last week, the KOSPI dropped by 1.72%, while the KOSDAQ fell by 3.23%. The KOSPI, which had been nearing the 3,500 level, declined for three consecutive days, breaking below 3,400. On September 26 in particular, it fell by 2.45%, marking the largest single-day drop since "Black Friday" on August 1, when disappointment over the tax reform plan triggered a sharp decline. Kim Jiwon, a researcher at KB Securities, explained, "The sell-off intensified due to diminished expectations for a U.S. interest rate cut, uncertainty over Korea-U.S. tariff negotiations, and caution ahead of the holiday. While most Asian stock markets posted limited declines of less than 1%, the sharper drop in the domestic market was mainly due to domestic factors such as the tariff negotiations, the weakening won, and the upcoming holiday, rather than external factors like the fading hopes for a U.S. rate cut. As a result, the KOSPI reversed its upward trend after five weeks."

Analysts note that the stock market has become more sensitive to negative news, as upward momentum has peaked and investor sentiment has weakened. Lee Kyungmin, a researcher at Daishin Securities, said, "Both the monetary policy expectations and the artificial intelligence (AI) momentum that drove the global stock market rally to record highs have now peaked. With positive factors already priced in, profit-taking sentiment has grown, and the market has begun to look for reasons to sell. The weaker short-term liquidity environment at the end of September has also added downward pressure, signaling the start of a full-fledged correction."

With the long Chuseok holiday ahead, the market is expected to remain highly sensitive to negative developments, and a wait-and-see approach is likely to dominate for the time being. Kang Jinhyuk, a researcher at Shinhan Investment & Securities, commented, "This week, as the market faces an unusually long Chuseok holiday, profit-taking may occur as investors adjust their portfolios to avoid exposure to uncertainty, and a wait-and-see attitude is likely to prevail rather than a clear directional trend."

He added, "With profit-taking sentiment strengthening ahead of the long Chuseok holiday and the burden of third-quarter earnings, which has historically weighed on the KOSPI in October, the market is likely to enter a phase of digesting the recent rapid gains and absorbing the selling pressure."

However, there are views that this correction will not lead to a prolonged downtrend. Na Jeonghwan, a researcher at NH Investment & Securities, said, "The current KOSPI correction reflects concerns that Korea-U.S. tariff negotiations could face difficulties. If negotiations break down and the United States pushes ahead with high tariffs, stock weakness could persist for an extended period. However, considering the upcoming Asia-Pacific Economic Cooperation (APEC) summit in October and the expansion of Korean companies' investments in the U.S., the likelihood of such an extreme scenario is low." He continued, "After the Chuseok holiday, progress in negotiations is expected to ease external uncertainties. Structurally, a shift to a more dovish policy by the Federal Reserve, a recovery in semiconductor sector earnings, and increased global investment in artificial intelligence (AI) are all expected to support the market from further declines."

Key events scheduled for this week include the release of the U.S. Conference Board Consumer Confidence Index for September and China's National Bureau of Statistics Manufacturing Purchasing Managers' Index (PMI) for September on September 30. On October 1, Korea's September export data and the U.S. Institute for Supply Management (ISM) Manufacturing Index for September will be announced. On October 2, Korea's September Consumer Price Index (CPI) will be released, followed by the U.S. September employment report and the U.S. ISM Services Index for September on October 3.

Na added, "The U.S. September employment and ISM manufacturing data to be released this week will be key variables that could influence the Federal Reserve's future monetary policy path. If the data is stronger than expected, the pace of rate cuts may slow, leading to continued dollar strength and foreign capital outflows, which could further weigh on stock prices. Conversely, if the data is weaker than expected, expectations for Fed rate cuts will strengthen, potentially stabilizing the exchange rate and triggering a rebound in stock prices."