[Good Morning Stock Market] "If External Uncertainties Are Controlled, KOSPI's Differential Appeal Will Be Maintained and Strengthened"

[Asia Economy Reporter Eunmo Koo] Since the adjustment in the global financial market is a phase of short-term volatility expansion rather than a trend reversal, the differentiated appeal of the KOSPI is expected to be maintained and strengthened as long as external uncertainties are controlled.

◆Kyungmin Lee, Researcher at Daishin Securities=Despite the increased volatility in the global financial market, the KOSPI has maintained a steady trend. Looking at the returns since September (based on the closing price on September 11), the KOSPI rose by 3%. In contrast, the Standard & Poor's (S&P) 500 recorded a decline of -4.6%, while advanced and emerging market indices fell by -3.6% and -0.9%, respectively. The 20-day correlation between the global stock market and the KOSPI turned negative in September.

The reasons for the KOSPI's strength, differentiated from the global financial market, are as follows. First and foremost, global fundamentals, financial conditions, and liquidity environment remain stable. The recent increase in global market volatility can be seen as limited to the U.S. and commodity markets. Second, while the global investment environment contraction is limited, the Korean stock market underwent price adjustments earlier than the global and U.S. markets. The global market peaked on September 2, whereas the KOSPI peaked on August 13. Third, earnings expectations for the KOSPI have contributed to this trend. The third-quarter operating profit forecast for semiconductors, especially Samsung Electronics, has been revised upward. The relative strength of the KOSPI's 2020 earnings forecast compared to major global countries has also reversed upward. Fourth, these series of domestic investment environment and earnings changes have led to a reduction in foreign net selling and a large inflow of IT-centered buying. Foreign demand changes, combined with still strong domestic liquidity momentum, have strengthened the KOSPI.

With limited trend changes in the global financial market, fluctuations are occurring due to overheating, valuation burdens by country, and differences in the macro environment. This adjustment is judged to be a phase of short-term volatility expansion rather than a trend reversal. In particular, the KOSPI's fundamentals and liquidity environment are becoming more favorable. If external uncertainties are controlled, the KOSPI's differentiated appeal is expected to be maintained and strengthened.

However, the KOSPI cannot maintain a steady trend alone indefinitely. It should not be overlooked that the global market adjustment phase has unfolded as much as the first price adjustment phase of the Korean market, and that social distancing measures at levels 2 to 2.5 are still in place due to the domestic resurgence of COVID-19. Third-quarter earnings expectations are also limited to certain sectors and stocks such as IT and semiconductors. It is still difficult to say that the valuation burden of the KOSPI has been sufficiently resolved.

Recently, the correlation with the global stock market has risen and turned positive. Domestic and external uncertainty variables still remain. It is difficult to say that the global financial market has entered a phase of volatility easing. Now, the KOSPI is expected to follow the ups and downs of the global financial market rather than maintaining a lone steady stance. In particular, the flow of the U.S. dollar after this week's Federal Open Market Committee (FOMC) meeting could cause changes in the global financial market. With the euro and pound no longer showing strength, it seems unlikely that the Federal Reserve (Fed) will take a more dovish stance than the Jackson Hole meeting. Rather, there is concern that the Fed may revise upward its U.S. economic outlook. If short-term volatility expands in the global financial market due to dollar strength, the KOSPI may no longer be a safe zone. It is still a time to maintain caution regarding short-term volatility expansion.

◆Sangyoung Seo, Researcher at Kiwoom Securities=The Korean stock market is expected to change depending on the results of the FOMC, key economic indicators from China and the U.S., but volatility is expected to increase due to uncertainties ahead of the presidential election. In particular, volatility may increase ahead of the futures and options expiration date (the 18th) due to SoftBank's stock option strategy revision for major U.S. tech stocks, which is expected to burden the Korean stock market as well. However, if individual investors continue their active net buying as they did last week, the adjustment range is expected to be limited, but the continued selling pressure from foreigners is likely to limit the upside as well.

Meanwhile, the Fed is likely to keep interest rates unchanged through the FOMC, and the market is expected to react depending on remarks by Fed Chair Jerome Powell. In particular, financial market changes are expected due to several factors such as the clarification of the average inflation targeting announced at the Jackson Hole Conference and revisions to the economic outlook due to the spread of COVID-19. Of course, considering these uncertainties, the Fed is expected to announce the maintenance of a moderate monetary policy stance, but since this is anticipated, the related issues are expected to have limited impact. Additionally, attention should be paid to the real economic indicators from the U.S. and China. If the improvement compared to the previous month is limited, the market may increase concerns about the economy. Considering this, the KOSPI is expected to fluctuate between 2350 and 2420 points, and the KOSDAQ between 850 and 900 points.

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