[Market ING] KOSPI Settles Above 4,000, Focus Shifts to Earnings and Economic Indicators

Weekly KOSPI Expected Range: 3,900 to 4,100

The KOSPI ultimately soared past the 4,000 mark last week, making headlines. Having digested major events, the market is now expected to focus on economic indicators and earnings reports.

Yonhap News Agency

Last week, the KOSPI rose by 4.21%, while the KOSDAQ increased by 1.96%. The KOSPI broke through the 4,100 level, firmly establishing itself above 4,000. Lim Jeongeun, a researcher at KB Securities, stated, "Reflecting expectations for semiconductor cooperation between Nvidia and major domestic companies, the KOSPI closed above 4,100 on October 31. The KOSPI surged by 19.94% in October, marking the highest monthly return since November 2001 (19.72%). Above all, it achieved the significant milestone of surpassing 4,000."

Kang Jinhyuk, a researcher at Shinhan Investment Corp., said, "A combination of favorable factors has driven the KOSPI's weekly uptrend for five consecutive weeks. Last week, the KOSPI overcame mega-events such as the US Federal Open Market Committee (FOMC) and a series of summit meetings, breaking the 4,000 mark. The US Consumer Price Index (CPI) came in below expectations, and the FOMC's mention of a potential rate cut and the possibility of ending quantitative tightening (QT) in December were also positive. Lingering uncertainties were alleviated by the series of US-Korea and US-China summit meetings."

However, the continued sharp rally has increased valuation pressures. Lee Kyungmin, a researcher at Daishin Securities, pointed out, "The rapid rise in the KOSPI has heightened short-term valuation and price pressures. The price-to-book ratio (PBR) and the gaps with the 120-day and 200-day moving averages have exceeded the 2021 peak, and the dollar-converted KOSPI is also approaching its historical high."

Despite concerns about the short-term rally, some believe there is still ample room for further gains. Lim said, "While there are burdens from the recent sharp rise, considering the semiconductor boom, expectations for government policies, and improving corporate earnings, there is sufficient potential for additional gains. This week, attention will focus on earnings reports from companies in shipbuilding, nuclear power, defense, and secondary batteries, which have recently led the index's rise."

Along with corporate earnings, the market is also expected to closely monitor economic indicators scheduled for release this week. Na Jeonghwan, a researcher at NH Investment & Securities, said, "The main drivers of the recent rally have been the US Federal Reserve's rate cut cycle and the artificial intelligence (AI) investment cycle. The confluence of these two cycles has created a major bull market. Conversely, if expectations for these two drivers weaken, some stock price corrections could occur. For AI investment, the cloud business performance of big tech companies that have reported earnings remains strong, and capital expenditures continue, providing solid momentum. However, regarding the Fed's rate cut cycle, Federal Reserve Chair Jerome Powell stated at the December FOMC that a rate cut decision has not been finalized, introducing some noise." He added, "With major events such as tariff negotiations, the FOMC, and big tech earnings announcements concluded last week, the market will focus this week on inflation and employment data that could influence the Fed's policy direction." NH Investment & Securities projected the KOSPI's expected band for this week to be between 3,900 and 4,100.

Key events this week include the release of China's October Caixin Manufacturing Purchasing Managers' Index (PMI) on the 3rd, Korea's October Consumer Price Index and the US October Institute for Supply Management (ISM) Manufacturing Index on the 4th. On the 5th, the US will announce September factory orders and the October ADP private employment change. The US October ISM Services Index will be released on the 6th, and China's October export data will be published on the 7th.

Researcher Lee noted, "Due to the ongoing government shutdown, the official US employment report has been delayed, so the alternative indicator, the ADP private employment report to be released on the 5th, is expected to show a decrease of 20,000 jobs. The ISM Manufacturing and Services Indices will become increasingly important as alternative gauges for assessing economic conditions in the absence of other data."

Earnings announcements from major US and domestic companies will also continue. On the 3rd, Palantir will release its results, followed by AMD, Uber, and Pfizer on the 4th, Novo Nordisk and Qualcomm on the 5th, and AstraZeneca on the 6th. In Korea, HD Hyundai Heavy Industries, Hanwha Aerospace, and Hyundai Rotem will announce third-quarter results on the 3rd; Ecopro BM on the 4th; NAVER and SM Entertainment on the 5th; and CJ ENM on the 6th.

Researcher Na commented, "With the earnings reports of major big tech companies such as Alphabet, Meta, and Microsoft all released last week, the US earnings season is passing its peak. So far, 87% of companies that have reported earnings have exceeded the consensus for earnings per share (EPS), marking a higher rate of earnings surprises than the average (78%). This week, the market will continue to focus on the profitability and capital expenditure trends of AI software companies such as Palantir and semiconductor companies such as AMD, which are scheduled to release their results."