[Weekly Market Outlook] KOSPI Faces Resistance at 2200 Level... Period of Uncertainty

COVID-19 Vaccines and Economic Stimulus Expectations Drive Gains
Volatility Possible Due to Economic Indicator Results
Shift in Focus to Leading and Cyclical Stocks Amid Short-Term Rally Concerns

[Asia Economy Reporter Oh Ju-yeon] The domestic stock market has risen to pre-COVID-19 levels, increasing valuation burdens. In the third week of July (20-24), the domestic stock market is expected to fluctuate between the 2100 and 2200 levels due to concerns such as disappointment over China's June retail sales contraction, record-high daily new COVID-19 cases in the U.S., and the exhaustion of policy factors following the announcement of the Korean New Deal policy.

On the 15th, the KOSPI index opened at 2210.89, up 26.80 points (1.23%) from the previous trading day (2176.43). Dealers are busy at work in the Hana Bank dealing room in Jung-gu, Seoul. In the foreign exchange market, the won-dollar exchange rate opened at 1203.0 won, down 2.7 won from the previous trading day (1204.6 won). Photo by Kim Hyun-min kimhyun81@

On the 19th, NH Investment & Securities projected the KOSPI range for the third week of July to be between 2100 and 2200. While expectations for Moderna's COVID-19 vaccine and U.S. stimulus package pledges could be positive factors, concerns such as the U.S. unemployment benefits cliff and exhaustion of domestic policy factors were cited as negative factors.

Researcher Kim Young-hwan analyzed, "With the U.S. daily new COVID-19 cases entering the 60,000 range, some parts of the stock market have raised concerns about the retraction of U.S. economic activities," adding, "This acts as a burden on the U.S. stock market's rise."

Concerns over the U.S. unemployment benefits cliff are also among the variables. Researcher Kim said, "If the Republican and Democratic parties fail to reach an agreement on federal unemployment benefits payments, concerns about the unemployment benefits cliff could arise in the U.S.," and "This, along with factors that prevented the stock market from breaking resistance levels last week, could act as burdens on the stock market."

Researcher Kim noted, "The overall momentum for stock market gains is weak," and added, "For further gains, a U.S. congressional stimulus package is necessary, but the gap between the Republican and Democratic parties is large." He mentioned that such uncertainty could weaken risk asset investment sentiment and, from an industry perspective, suggested a barbell strategy of growth stocks and cyclical stocks considering the potential weakening momentum of stocks that saw large gains in July.

Daishin Securities viewed that the market could show a pattern of strong start and weak finish amid expectations from COVID-19 clinical results and sluggish July economic indicators. Researcher Moon Nam-jung explained, "One pattern emerging this month is that every time there is a trend reversal, news about a COVID-19 vaccine has turned the trend upward," adding, "Positive news about the initial clinical results of AstraZeneca's COVID-19 vaccine is scheduled around the 20th."

Moon also pointed out that the market's reaction to economic indicators is another pattern this month. He said, "Starting with South Korea's July export data on the 21st and followed by the July Markit manufacturing and services PMI data from the U.S. and Europe on the 24th, these indicators are expected to show weakness compared to the previous month due to the resurgence of COVID-19 in the U.S. since June," and "Unlike before, when economic indicators raised expectations for recovery, this time they increase concerns about the economy, which will dissolve the market's morphine effect from the COVID-19 vaccine news early in the week and increase downward pressure on the market."

Moon added, "The overall market tone is expected to tone down, so hedging strategies against spot price fluctuations will be effective toward the end of the week."

By sector, there is analysis that cyclical stocks and China-related consumer stocks could attract attention as China's economic recovery becomes visible.

SK Securities diagnosed that as China's economic recovery becomes visible and expectations for the lifting of the Hallyu ban increase, interest in cyclical stocks and China-related consumer stocks could rise. They explained that while price burdens have appeared due to short-term rises in leading stocks, China's faster-than-expected economic rebound is acting as momentum for cyclical stocks and China-related consumer stocks. However, they forecast that these cyclical stocks will only show temporary strength and are unlikely to change the trend.

Researcher Han Dae-hoon said, "Considering earnings and future growth potential, existing leading stocks are more likely to gain strength," and "In that regard, the upcoming earnings announcements of major U.S. companies next week are important."

On the 23rd, Microsoft and Tesla are scheduled to announce earnings, followed by Amazon and Intel on the 24th. Researcher Han noted, "Except for Tesla, these companies are all expected to see revenue growth compared to the previous year, and Microsoft and Amazon.com are even expected to have higher revenue than the previous quarter." He predicted, "If earnings perform well amid current price burdens, existing leading stocks will see further strength; conversely, if earnings disappoint, there will be a speed adjustment and increased interest in cyclical stocks and China-related consumer stocks."

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