[Good Morning Market] Accumulated Rally Fatigue... KOSPI Expected to Pause for Breath

On January 20, the KOSPI is expected to undergo a short-term adjustment due to accumulated fatigue from consecutive gains.

The previous day, the New York Stock Exchange was closed for Martin Luther King Jr. Day. European stock markets weakened, especially among sectors vulnerable to tariffs such as automobiles and luxury goods, due to uncertainty over tariffs stemming from U.S. President Donald Trump's remarks about purchasing Greenland.

Recently, President Trump has repeatedly expressed his intention to incorporate Greenland, increasing external pressure. Since failing to win the Nobel Peace Prize last year, his desire to strengthen U.S. military and security hegemony has grown, leading to a more aggressive approach in diplomacy and trade, according to analysts.

While Europe is reportedly preparing retaliatory tariffs in response, most assessments suggest that the tariff dispute is unlikely to trigger a chain reaction of sharp declines across the financial markets. Within the U.S. Republican Party, there is significant opposition to the forced incorporation of Greenland, and an Ipsos poll shows that less than 20% support Trump’s actions regarding Greenland, indicating substantial domestic political pressure.

Given these circumstances, analysts believe that the practical benefits for the Trump administration from forcibly incorporating Greenland through tariff threats would be limited. The market is focusing on the possibility of a compromise scenario, in which 'U.S. tariff suspension' is exchanged for 'European military concessions' during negotiations with Europe, including Trump’s speech at the Davos Forum on January 21 and talks continuing until February 1.

In the short term, tariff-related uncertainty will likely linger in the stock market, but since the market has already developed considerable resilience to tariff issues, further downward pressure on stock prices is expected to be limited.

The previous day, the KOSPI initially weakened due to Trump-related uncertainty, but later surged past the 4,900 mark at closing, driven by a sharp rise in automobile stocks amid the spread of the physical artificial intelligence (AI) theme, as well as continued strength in leading sectors such as semiconductors, shipbuilding, and defense. The KOSPI rose 1.3% and the KOSDAQ rose 1.4% compared to the previous day.

However, today’s market is likely to open lower, reflecting the weakness in European markets caused by Trump’s tariff uncertainty. During the session, profit-taking is expected to emerge, especially in the automobile sector, which surged the previous day, leading to a rotation of funds into sectors less affected by tariffs, such as defense and shipbuilding.

Han Ji-young, a researcher at Kiwoom Securities, analyzed, "As the KOSPI broke through the 4,900 mark, the rally has been concentrated in large-cap stocks and the KOSPI, with little spillover to small and mid-cap stocks or the KOSDAQ. Still, from an industry perspective, sector rotation within the KOSPI is driving the index higher, which is a notable feature."

Han added, "We are still in a phase where the narratives surrounding leading stocks-such as the memory upcycle, Mars exploration projects, expanding global defense demand, and the visibility of mass production of physical AI (robots)-remain valid. Therefore, the upside for the index remains open in the medium term."

However, he also noted, "Major stock markets in the U.S., Europe, and Japan experienced corrections due to Trump-related risks, and the domestic market may also undergo a short-term adjustment."