[Market ING] KOSPI Breaks Through 3,600: How Long Will the Rally Last?

The KOSPI continues its streak of record highs. On October 10, after a long holiday break, the KOSPI opened for the first time in a while and surpassed the 3,600-point mark for the first time in its history. With the stock market remaining strong, market attention is expected to focus on earnings as the third quarter earnings season kicks off in earnest this week.

Yonhap News Agency

Last week, when the market opened for only one day due to the extended holiday, the KOSPI rose by 1.73% and the KOSDAQ by 0.61%. The KOSPI climbed for three consecutive trading days, reaching the 3,610-point level. Lim Jeongeun, a researcher at KB Securities, said, "The KOSPI has been setting new record highs daily, breaking through 3,600 points, as the rallies of Samsung Electronics and SK Hynix continue." She added, "Domestic semiconductor stocks continued their rally, buoyed by positive news during the holiday period, such as the strategic partnership between OpenAI and AMD, and Nvidia's approval to export to the United Arab Emirates (UAE), which heightened expectations for further gains."

Samsung Electronics and SK Hynix surged by 6.07% and 8.22%, respectively, while foreign investors led the index's rise with net purchases of over 850 billion won in the electrical and electronics sector.

However, the gains were limited to certain stocks. Lim noted, "Due to the concentration in semiconductors, only about 30% of KOSPI stocks rose, and the KOSDAQ's gains were limited by weakness in pharmaceutical, biotech, and secondary battery stocks, as well as the absence of leading sectors." Kang Jinhyuk, a researcher at Shinhan Investment Corp., commented, "After surpassing 3,500 points on October 2, the KOSPI broke through 3,600 in just one day, reflecting the positive news from the holiday. Semiconductor and nuclear power stocks, part of the AI value chain, drove the index higher amid the AI boom." He pointed out, "Although the index rose, the number of declining stocks (1,645) outnumbered those rising (917)."

There are forecasts that the upward trend in stock prices will continue in the mid-to-long term. Na Jeonghwan, a researcher at NH Investment & Securities, explained, "The current market is experiencing an 'everything rally,' where both risk and safe assets are rising simultaneously. In the past, such rallies occurred during periods of zero interest rate policy by the U.S. Federal Reserve or when fiscal and monetary policies were eased simultaneously after COVID-19. However, the current rally is different in that it is driven by expectations that have been priced in before an actual rate cut has taken place." He added, "If the government shutdown (temporary suspension of operations) is prolonged and expectations for a rate cut at the October Federal Open Market Committee (FOMC) weaken, a short-term correction will be inevitable. However, since it is highly likely that the Fed will eventually enter an interest rate cut cycle, the upward trend in stock prices is expected to continue in the mid-to-long term."

With semiconductors leading the KOSPI’s record-breaking rally, the market is expected to focus on Samsung Electronics' third-quarter earnings announcement scheduled for this week. Lim stated, "Samsung Electronics is set to announce its preliminary results on October 14, and attention will be on whether the semiconductor-led rally can continue." Kang added, "In a situation where confidence in AI and concerns about an economic slowdown coexist, it is important to check whether the strength of tech stocks can continue through the earnings announcements of semiconductor companies such as ASML and TSMC, and whether Samsung Electronics can achieve a rebound in its results."

Key events scheduled for this week include the release of China’s September export and import trends on October 13, the U.S. September Consumer Price Index (CPI) and China’s September CPI and Producer Price Index (PPI) on October 15, U.S. September retail sales and PPI on October 16, and U.S. September industrial production on October 17.

Lee Kyungmin, a researcher at Daishin Securities, said, "October 15 could be a turning point for the prolonged federal government shutdown and its impact on financial markets." He added, "If the shutdown continues, major indicators such as the September CPI on the 15th, PPI and retail sales on the 16th may not be released before the FOMC interest rate decision on October 30. The September CPI is expected to rise by 3.1% year-on-year, and the rebound is likely to continue." He continued, "Meanwhile, October 15 is the scheduled payday for active-duty U.S. military personnel and other government employees, so if the shutdown extends beyond that date, its psychological impact on the U.S. economy, consumption, and employment could increase."

This week marks the beginning of the third quarter earnings season. On October 14, JPMorgan, Citibank, Wells Fargo, and Goldman Sachs will release their results, followed by Bank of America, Morgan Stanley, and ASML on October 15, and TSMC on October 16. In Korea, Samsung Electronics will announce its preliminary third-quarter results on October 14.