Expected Short-Term Correction, Rally Likely to Resume in December

KOSPI Drops Over 2% for Two Consecutive Days
Index Falls Below 3,900 During Trading
Short-Term Correction Concerns Persist Amid Rapid Rally
Past Bull Markets Saw Corrections Lasting 40?50 Days

The KOSPI appears to have entered a short-term correction phase, recording a decline of over 2% for two consecutive days. On the previous day, the index fell below the 3,900 mark during trading hours, leading to what was described as a 'Black Wednesday.' Considering the circumstances during previous bull markets, there is an outlook that, after a short-term correction lasting about 40 to 50 days, the upward trend will resume. Therefore, it is expected that the market will undergo a correction this month, with the rally restarting from December.

Yonhap News Agency

According to the Korea Exchange on November 6, the KOSPI closed at 4,004.42 on the previous day, down 117.42 points (2.85%) from the previous session. This followed a 2.37% drop on November 4, marking two consecutive days of sharp declines. During trading, the index even fell below the 3,900 mark, and at one point plummeted by over 5%, triggering a program sell-sidecar-a temporary halt of program sell orders-for the first time in seven months since 'Black Monday' on April 7.

Foreign investors have dragged the index down by engaging in net selling on the main board for three consecutive days. So far this month, they have sold 5.55 trillion won worth of shares.

As the KOSPI continued to hit record highs amid a steep upward trend, concerns about overvaluation and the possibility of a correction had been mounting.

Lee Sangjun, a researcher at NH Investment & Securities, explained, "One of the reasons for the decline is profit-taking following a rapid short-term rise. Since September, the KOSPI has surged by more than 1,000 points over two months, led by the semiconductor sector." He added, "Of course, there have been several factors supporting the stock price rally, such as upward revisions to semiconductor sector earnings forecasts, growing expectations for a Federal Reserve rate cut, and the resolution of Korea-U.S. tariff negotiations. However, concerns over the steep rise remained."

However, some analysts believe that this is not the start of a mid- to long-term correction phase. Jo Ain, a researcher at Samsung Securities, stated, "Market volatility may increase in the short term, but it is unlikely that we are entering a mid- to long-term correction phase." She continued, "Although the U.S. government shutdown is being prolonged, it is an issue that can be resolved. Considering the Federal Reserve's stance and the state of the U.S. economy, there is still a high possibility of a rate cut at the Federal Open Market Committee (FOMC) meeting in December. In addition, quantitative tightening (QT) is scheduled to end as of December 1, so it is more appropriate to expect an expansion of liquidity rather than a contraction."

According to KB Securities, in past bull markets, a short-term correction typically occurred around 200 days after the bull market began. During the 1998-1999 bull market, a correction started on the 209th day and ended on the 253rd day, lasting 44 days. The market dropped by 22% during this period, but the KOSPI nearly doubled after the correction.

In the 2009-2011 bull market, the correction began on the 204th day and ended on the 270th day, lasting 56 days, with a decline of 11%. However, during this period, the market moved sideways for a considerable time before the rally resumed.

During the 2020-2021 bull market, the correction started on the 176th day and lasted for 45 days, with a decline of 9.5%. After the correction, the bull market continued.

Ha Inhwan, a researcher at KB Securities, said, "If we assume that the current domestic bull market began in April this year, the duration has been about 200 days. In all three previous bull markets that lasted two to three years, a short-term correction occurred around the 200-day mark." He explained, "Based on past experience, the correction could last until around mid-December." He added, "It would be prudent to maintain a conservative stance in November, but investors should prepare for the bull market to resume from early to mid-December."

Solid earnings prospects for domestic companies are expected to support the future uptrend of the stock market. Lee also noted, "Given that earnings forecasts for domestic companies next year are improving, it is highly likely that the stock market will continue its upward trend after a short-term correction." He added, "In particular, thanks to the improvement in the semiconductor industry, the consensus for KOSPI net profit in 2026 (the average of securities firms' forecasts) is expanding to 292 trillion won. This indicates that the fundamentals are also improving."