[Market ING]KOSPI Slips Back to 5,000... Will the Correction Continue?

Weekly KOSPI Trading Band Forecast at 4,900-5,400

The Kospi has been shaken, with the index falling below the 5,000 level during intraday trading. As the market had risen steeply so far and key employment and inflation indicators are concentrated this week, some expect a period of heightened instability to continue for the time being.

Yonhap News Agency

Last week, the Kospi fell by 2.59% and the Kosdaq by 5.97%. Weekly returns turned negative for the first time in six weeks. After the Kospi initially broke below 5,000 at the start of last week due to the "Kevin Warsh shock," it rebounded sharply for two consecutive days and managed to settle above 5,300. It then declined for two straight sessions again, ending the week in the low 5,000 range. Lim Jeongeun, analyst at KB Securities, said, "The index fell for two consecutive days on the 5th and 6th due to macroeconomic slowdown, concerns about artificial intelligence (AI) profitability, and a sharp drop in major asset prices," adding, "The Kospi triggered a sidecar three times just last week, and a highly volatile market has continued."

Lee Kyungmin, analyst at Daishin Securities, said, "The retreat in risk appetite that began with U.S. President Donald Trump's nomination of Kevin Warsh as the new Federal Reserve (Fed) Chair is continuing," and analyzed, "On top of this, weakness in software companies and the narrowing gap between earnings expectations and reality for major AI companies have expanded short-term volatility in financial markets." However, he assessed that AI-related concerns are excessive at this stage. Lee said, "Ultimately, this is a process in which the market is adapting to the rapidly developing AI industry and to changing interests and profit models at the corporate level," adding, "Earnings expectations for Korea's key industries, which are central to building AI infrastructure, remain solid. Within the Kospi's earnings-driven upward trend, the market is currently going through a phase of cooling off short-term overheating and digesting supply."

The upward trend in share prices is expected to remain intact. Na Junghwan, analyst at NH Investment & Securities, said, "Although share price volatility has recently increased, this is because the strong market has pushed expectations higher, which in turn has amplified volatility," and went on, "The risk of structural growth being damaged is limited, and a correction of around 5% from the peak is a typical level within a bull market, so we judge that the upward trend in share prices is also being maintained. As liquidity is abundant and corporate earnings, including in semiconductors, remain solid, we maintain a buy stance." NH Investment & Securities presented this week's expected Kospi trading band as between 4,900 and 5,400.

There are, however, views that the market could undergo a correction phase throughout this month. Lee Jaeman, analyst at Hana Securities, said, "We believe the current situation is a highly volatile correction phase that can occur within a bull market," adding, "In the case of the Kospi, when a bull-market correction has occurred, it has typically fallen by 8% to 10% from the peak, and the correction period has lasted around 20 days. Applying the experience of past bull markets, the bottom of the Kospi's price correction could form around the 4,830 level (assuming a 10% drop from the peak of 5,371 points), and overall, February can be viewed as a period in which the correction phase is unfolding."

This week's key events include the release of U.S. December retail sales on the 10th; Korea's export data for February 1-10, the U.S. January employment report, and China's January Consumer Price Index (CPI) on the 11th. The U.S. January employment report, which was originally scheduled for release on the 6th, was postponed to the 11th due to the impact of a partial shutdown (temporary suspension of government work) of the U.S. federal government. On the 13th, the U.S. January CPI is scheduled to be released.

Lee said, "The number of U.S. nonfarm payrolls for January is expected to increase by 71,000, improving from 50,000 in the previous month, while the unemployment rate is projected to remain unchanged from the previous month at 4.4%," adding, "What has recently been stirring volatility in global financial markets is concern over the hawkish (preferring monetary tightening) stance of the next Fed Chair. If the employment figures do not deviate significantly from expectations, the impact on the consensus regarding monetary policy will be limited. If solid economic and employment conditions are confirmed, there is a greater likelihood that this will actually accelerate a rotation from technology stocks into value stocks." He continued, "December retail sales to be released on the 10th are also expected to grow 0.5% month-on-month, which could lend further support to the relative strength of U.S. domestic demand and consumer-related stocks."

Corporate earnings announcements will also continue. In the United States, CoreWeave will report on the 9th, followed by Coca-Cola and Spotify on the 10th, and Cisco, McDonald's, and Shopify on the 11th. In Korea, Mirae Asset Securities, HD Hyundai Heavy Industries, and Hanwha Aerospace will release their fourth-quarter 2025 results on the 9th, KT on the 10th, and HYBE and Kakao on the 12th.