[Good Morning Market] Liquidity Driving KOSPI... Attention on Changes in Foreign Fund Flows

On January 15, the domestic stock market is expected to experience a period of consolidation, with sector rotation continuing to play out.

Previously, on January 14 (local time), the New York stock market closed lower across the board as weakness in financial and technology stocks coincided with concerns over potential Iranian military intervention. The Dow Jones Industrial Average, which focuses on blue-chip stocks, fell by 42.36 points (0.09%) to 49,149.63. The S&P 500 Index, which tracks large-cap stocks, dropped by 37.14 points (0.53%) to 6,926.6, while the tech-heavy Nasdaq Index declined by 238.123 points (1.0%) to 23,471.749.

AFP Yonhap News

Although the New York stock market has remained sluggish since the beginning of the year, the KOSPI is expected to maintain its solid downside rigidity. Han Ji-young, a researcher at Kiwoom Securities, stated, "Since the start of the year, some sectors have surged, leading to a growing desire for profit-taking in the domestic market." She added, "Today, the domestic stock market is likely to see sector rotation centered on undervalued earnings stocks, supported by a reversal in the won-dollar exchange rate and abundant market liquidity."

The main factor supporting the upward momentum of the domestic stock market is customer deposits, which are approaching 90 trillion won. As institutional investors also increase their capital deployment, there are expectations that the upcoming earnings season will trigger a shift in funds from early-year high-flyers to undervalued earnings stocks.

However, one variable is that foreign investors, who had concentrated their buying on semiconductors at the beginning of the year, have recently begun taking profits, particularly in large-cap stocks. Over the past five trading days, foreign investors have sold 2.7 trillion won worth of domestic stocks. The won-dollar exchange rate, which is nearing 1,470 won, is also cited as a factor fueling this net selling trend.

One researcher pointed out that the won-dollar exchange rate plunged by more than 10 won the previous day following verbal intervention by U.S. Treasury Secretary Scott Bessent, noting, "It is important to watch whether the recent selling trend among foreign investors will reverse today." Previously, Secretary Bessent stated, "The recent depreciation of the won does not reflect Korea's fundamentals," and "Excessive volatility in the foreign exchange market is undesirable." This is expected to increase caution about additional government intervention in the market and temporarily put the brakes on the sharp weakening of the won.

On this day, the Bank of Korea will hold its first Monetary Policy Board meeting of the new year. The iM Securities Research Center commented, "There is a high likelihood that the Monetary Policy Board will freeze rates for the fifth consecutive time," and added, "Given the short-term correction risk in the domestic stock market following sharp gains, attention should be paid to Governor Lee Chang-yong's press conference."