May Stock Market: Will It Continue to Rise or Take a Break?

[Asia Economy Reporter Song Hwajeong] As the stock market continues its strong performance, attention is focused on whether the upward trend will persist in May. It is expected that the direction of the index will depend on earnings and liquidity.

According to the Korea Exchange on the 30th, the KOSPI rose 10.99% this month. Compared to the year-to-date low closing price recorded on the 19th of last month, it has increased by 33.61%.

Outlooks for the stock market in May are mixed. While some predict entering a second phase of upward momentum due to liquidity and expectations of economic recovery, others believe a short-term correction is inevitable given the rapid rebound.

Lee Kyungmin, a researcher at Daishin Securities, said, "In May, the KOSPI will enter a second phase of upward momentum driven by liquidity momentum combined with expectations of economic recovery." He added, "The calming of COVID-19, the resumption of economic activities, expectations of economic recovery, liquidity, and policy momentum will lead the market's rise." Daishin Securities projected the KOSPI range for May to be between 1700 and 1960 points. Lee explained, "Korea has relatively favorable economic momentum and the strongest earnings momentum among major global countries through 2021," and "In the phase of global liquidity expansion, foreign net buying inflows into the KOSPI market are only a matter of time."

Although the rebound will continue, it is expected that the upward momentum will weaken as the KOSPI approaches the 2000 level. Oh Taedong, a researcher at NH Investment & Securities, said, "The stock market is rising, reflecting the easing of liquidity crunch risks, credit risk mitigation, and expectations of a short recession, supported by strong monetary and fiscal stimulus policies. Since liquidity remains strong, expectations for further gains are valid." However, he added, "At the 2000 level, the 12-month forward price-to-earnings ratio (PER) is 11.3 times, increasing valuation pressure, and profit-taking pressure from individual investors is expected to expand, gradually weakening the upward momentum."

There are also forecasts that the stock market will take a breather in May. Park Soyeon, a researcher at Korea Investment & Securities, said, "The spread of COVID-19 has slowed, and lockdowns are about to be lifted, but there are still no treatments or vaccines, and experts warn of a second wave, so the normalization rate of economic activities will be around 80-90%." She added, "As long as the anxiety about a possible resurgence remains, preferences for safe assets like cash and the dollar will not completely disappear." Park suggested, "This implies that despite the recent strong rally, the stock market is likely to enter a pause period in May," noting, "Although the index has recovered two-thirds of its losses, credit market recovery is slow, and uncertainties such as the sharp drop in international oil prices remain. This means the possibility of unexpected events emerging remains open, and a period testing the will and capability of policymakers may return."

In particular, earnings remain a burden. Moon Dongyeol, a researcher at Samsung Securities, said, "While earnings forecasts have begun to be revised downward in earnest, stock prices have rebounded rapidly, mostly recovering the losses caused by COVID-19," adding, "Without upward revisions of earnings forecasts or valuation rerating, the potential for further gains is limited." This is because the process of confirming poor corporate earnings in the first half of the year remains. Moon explained, "The 12-month expected earnings forecast has not been significantly damaged yet, but the earnings revision ratio is at an unprecedentedly low level," and "The earnings revision ratio has empirically often preceded expected earnings."

The inevitable deterioration of exports in the second quarter is also a key factor in downward earnings revisions. Exports from the beginning of April to the 20th decreased by 26.9% compared to the same period last year. Moon said, "Considering the global trade slowdown caused by COVID-19, a sharp decline in exports is unavoidable at least during the second quarter, and earnings expectations will also be lowered."

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