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

The KOSPI recovered and stabilized above the 4,100 mark last week. The influx 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% and the KOSDAQ by 0.48%. Lim Jeongeun, a researcher at KB Securities, analyzed, "Driven by positive sentiment around Micron and expectations for a year-end Santa Rally, the KOSPI climbed 2.71% last week, recovering most of the previous week's losses. Net purchases by foreign investors amounted to 4.3 trillion won, also recovering the previous week's outflows of 3.1 trillion won."

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

This week marks both the final week of the year and includes the first trading day of 2026. Analysts note the need to be mindful of short-term volatility due to ex-dividend dates and other factors. Lee explained, "With the closure of the shareholder registry at the end of the year, investors should be aware of the impact of the ex-dividend date on the 29th and the potential for increased short-term volatility." He continued, "However, due to dividend modernization policies aimed at enhancing KOSPI value, 98 companies in the KOSPI200 set their dividend record dates around the first-quarter shareholders' meeting, when dividends are confirmed. This number is expected to increase this year, meaning the impact of ex-dividend dates will vary depending on each company's record date." He added, "If any company experiences an excessive decline compared to the expected dividend amount around the 29th, it should be viewed as a buying opportunity."

Despite a wait-and-see stance likely to persist this week, a positive outlook for the market is expected to remain. Lim commented, "This week will see ex-dividend dates for December settlements, market closures, and holidays for the year-end and New Year, leading to subdued trading volume and continued caution. However, with customer deposits-a measure of market cash waiting to be invested-remaining high at around 80 trillion won, we maintain a positive outlook for the domestic stock market and see ample room for further gains."

Lee noted, "Since reaching the 4,200 mark in early November, the KOSPI has undergone a correction, easing valuation pressures." He continued, "Forward earnings per share (EPS) have risen to 406 points, and the 12-month forward price-to-earnings ratio (PER) has fallen to 10.1 times. This is close to the three-year average of 10.3 times, and as earnings forecasts-especially in the semiconductor sector-are rising rapidly, the KOSPI's upside potential is increasing."

Key events this week include the release of the U.S. Federal Open Market Committee (FOMC) minutes on the 31st and the announcement of China's December manufacturing and services Purchasing Managers' Index (PMI). On the 1st, Korea's December export and import 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 of the December FOMC meeting will be released, which will provide insight into the rationale behind the 25 basis point (1bp = 0.01% point) rate cut decision and future rate cut signals." He added, "If there is an emphasis on short-term Treasury purchases and discussions about ending quantitative tightening (QT) as measures to stabilize the short-term funding market, expectations for liquidity in 2026 could be heightened." He continued, "China's PMI indicators should also be monitored, as they will provide insight into the country's domestic demand recovery, the U.S.-China tariff war truce, and policy effects."

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