[Market ING] KOSPI Stabilizes Above 4,100, Fuels Year-End 'Santa Rally' Expectations

The KOSPI index recovered and settled above the 4,100 mark last week. The inflow of buying from foreign investors and institutions is fueling expectations for a year-end 'Santa Rally.'

Yonhap News Agency

Last week, the KOSPI rose by 2.71%, while the KOSDAQ increased by 0.48%. Lim Jeongeun, a researcher at KB Securities, analyzed, "Driven by the positive momentum from Micron and expectations for a year-end Santa Rally, the KOSPI climbed 2.71% last week, recouping most of the previous week's losses. Net purchases by foreign investors amounted to 4.3 trillion won, also recovering the previous week's outflow of 3.1 trillion won."

Lee Kyungmin, a researcher at Daishin Securities, stated, "Expectations for a year-end Santa Rally continue," and added, "Ahead of Christmas, the KOSPI rose by more than 2% over the week, while all three major U.S. indices posted gains for five consecutive trading sessions. The Chicago Board Options Exchange (Cboe) Volatility Index (VIX) fell to 13.5%, marking its lowest level since it recorded 12.7 on December 6, 2024."

This week marks both the final week of this year and includes the first trading day of 2026. Analysts note that investors should be mindful of increased short-term volatility due to ex-dividend dates and other factors. Lee explained, "With the year-end shareholder registry closure, the impact of the ex-dividend date on the 29th and the potential for increased short-term volatility should be considered. However, due to advanced dividend policies aimed at enhancing KOSPI value, 98 companies in the KOSPI200 set their dividend record dates around the first-quarter shareholders' meetings where dividends are confirmed. This number is expected to increase further this year, meaning the impact of ex-dividend dates will vary depending on each company's record date." He added, "For companies that experience excessive declines compared to expected dividend amounts around the 29th, it may be an opportunity to buy."

Despite a continued wait-and-see approach this week, a positive outlook for the market is likely to persist. Lim commented, "This week will see ex-dividend dates for December-settlement dividends, the market closing for the year, and a holiday break before the new year's first trading session. Although trading volume is expected to be light and investors may remain on the sidelines, customer deposits-standing at a high level of 80 trillion won-suggest a positive outlook and ample room for further gains in the domestic stock market."

Lee noted, "After reaching the 4,200 level in early November, the KOSPI has undergone a correction, easing valuation pressures. The forward earnings per share (EPS) has risen to 406 points, while the 12-month forward price-to-earnings ratio (PER) has dropped to 10.1 times. This is close to the three-year average of 10.3 times. As earnings forecasts, particularly in the semiconductor sector, rise rapidly, the KOSPI's upside potential is increasing."

Key events this week include the release of the minutes from the U.S. Federal Open Market Committee (FOMC) meeting on the 31st and the announcement of China's December manufacturing and services Purchasing Managers' Index (PMI). On the 1st, Korea's December trade data will be released, and on the 2nd, the U.S. December S&P Manufacturing PMI will be announced.

Lee stated, "On the 31st, the minutes from the December FOMC meeting will be released, providing insight into the background of the 25bp (1bp = 0.01 percentage point) rate cut decision and future rate cut signals. In addition, if discussions highlight short-term Treasury purchases and the end of quantitative tightening (QT) as measures to stabilize the short-term funding market, expectations for liquidity in 2026 could rise." He added, "It is also important to monitor China's PMI indicators, which will offer insight into domestic demand recovery, the U.S.-China tariff war truce, and policy impacts in China."

The domestic securities and derivatives markets will operate until the 30th and will be closed on the 31st. The regular stock market will open at 10:00 a.m. and the regular derivatives market at 9:45 a.m. on the 2nd of next month.