[Good Morning Stock Market] January's Warm Breeze... KOSPI Jumps to Last Year's Peak on Expanding Investor Sentiment

[Asia Economy Reporter Oh Ju-yeon] Since the beginning of this year, investment sentiment has noticeably improved as risk asset preference has increased. Trading volume has also risen by about 24% compared to last year's average, and with semiconductor buying momentum continuing mainly among foreigners, the KOSPI has quickly surged to the 2250 level, the previous year's peak. Considering that it dropped to the 2130 level during trading on the 8th but recorded 2250.79 during trading on the 14th, it rose more than 100 points in just four trading days. Even when the Iran crisis worsened previously, the decline in volatility following the resolution of the crisis was greater than the increase in volatility, indicating that the market has become more sensitive to positive news than negative news.

◆ Kim Dong-wan, Researcher at Eugene Investment & Securities = Recently, concerns about market overheating have emerged as the proportion of short selling in trading volume has sharply decreased. Generally, a decrease in the short selling trading ratio often indicates excessive optimism among market participants. However, as continuously mentioned in annual forecasts, the recent short selling trading volume trend is determined more by futures basis than by market direction betting.

The reason for the decrease in the short selling trading ratio since the second half of 2019 is presumed to be that financial investments, which account for most institutional supply and demand, prefer long positions (buying for profit) over borrowed short selling (selling short for profit) due to borrowing fees. The profitability decline caused by sluggish futures basis movements since 2019 likely intensified this phenomenon.

Also, since January, institutional (financial investment) demand for borrowed short selling has disappeared. The sluggish futures basis movement starting in October and the high valuation of the basis beginning in November reduced financial investment's spot selling demand, leading to a decrease in borrowed short selling volume. The continuous net spread selling by financial investments at each expiration is also presumed to have reduced stock lending demand.

This decreasing trend in the short selling trading volume ratio is expected to continue until the February expiration date when financial investment's long positions are liquidated or until the March expiration.

◆ Han Dae-hoon, Researcher at SK Securities = Since the beginning of the year, a favorable atmosphere toward the stock market has continued. The stock market, which experienced increased volatility due to the Iran crisis, resumed its upward trend as the situation calmed faster than expected.

The environment surrounding the stock market remains favorable, including the signing of the US-China Phase One trade agreement (scheduled for the 15th).

Attention is focused on corporate earnings announcements. The 2019 Q4 earnings season began with Samsung Electronics' Q4 earnings guidance announcement. Although Samsung Electronics reported results exceeding expectations, the outlook for this earnings season is not entirely bright. While the decline in earnings estimates has somewhat eased, downward revisions to Q4 earnings estimates continue. The net income forecast for KOSPI companies in Q4 2019 is 19.9 trillion KRW, a 30.3% decrease compared to the same period last year. It has also been revised downward by 6.6% compared to a month ago.

Generally, Q4 earnings season results affect early-year earnings estimates. The poor Q4 2018 earnings announcements led to a sharp decline in earnings estimates last year, while years with results meeting expectations showed stable net income estimates the following year (2014-2017).

2020 is expected to see a recovery in corporate profits. Although the era of KOSPI net income exceeding 100 trillion KRW was broken after four years, it is expected to increase again to 126 trillion KRW this year. Even considering the annual downward revisions of net income estimates, a growth effect of over 30% is anticipated, which is positive. Net income excluding Samsung Electronics and SK Hynix is also expected to increase by 28.5% compared to last year. Ultimately, the key point in this Q4 earnings season is whether results significantly miss expectations. As long as they do not fall far short, the earnings expectations for 2020 remain valid.

◆ Seo Sang-young, Researcher at Kiwoom Securities = The Korean stock market showed strength yesterday but experienced profit-taking as news related to the US-China trade negotiations emerged. In particular, some Chinese media reported that the trade war with the US is not over, and Peter Navarro announced that tariffs would be immediately increased if China does not comply with the agreement, which likely increased profit-taking desires.

Meanwhile, the US stock market turned downward in the afternoon on the 14th due to profit-taking related to the US-China trade negotiations. Reports that tariffs on China would be maintained until the US presidential election surfaced, and although this was already known, the emergence of selling pressure is noteworthy. US officials announced that after the first agreement in December, tariffs on $112 billion worth of Chinese products imposed in September last year would be reduced, but the 25% tariff on $250 billion worth of products imposed in 2018 would be maintained.

The fact that selling pressure emerged based on already known information suggests that US market participants have increased profit-taking desires after the US-China agreement signing ceremony. Considering this change, the Korean stock market may also see increased profit-taking desires, so caution is advised for stock groups that have experienced significant gains so far.

This content was produced with the assistance of AI translation services.