Increased Volatility from the US... Adjustment Expected to Continue Until October

KOSPI Falls Below 2300, KOSDAQ 'Threatened' at 800
Shaken by US Uncertainties Including Presidential Election and Tech Stock Bubble Debate
Volatile Market Expected to Continue for Now

[Asia Economy Reporters Song Hwajeong, Lee Minji] As the KOSPI fell below the 2300 mark and the KOSDAQ, which had surpassed 900 earlier this month, is now threatened to fall below 800, investor anxiety has intensified amid the shaky stock market. The dominant view is that volatility will continue for the time being due to factors such as the U.S. presidential election and concerns over a new European lockdown caused by COVID-19. Experts point out that investors need to pay attention to various variables and engage in risk management.

As of 9:45 a.m. on the 25th, the KOSPI recorded 2283.96, up 0.5% from the previous trading day. The upward trend is being maintained as a rebound buying wave has flowed in following the sharp drop the day before. At the same time, the KOSDAQ index was up 0.5% at 811.00.

The KOSPI has shown significant volatility since the beginning of this month. On the 14th, foreign and institutional investors returned to net buying after 10 trading days, stabilizing the index above 2400 and approaching the intraday record high of 2458.17 (August 13). However, subsequent selling by institutions and foreigners caused the KOSPI to fall about 7% from its peak. The domestic stock market was affected by increased volatility in the U.S. stock market amid debates over a tech bubble and difficulties in policy agreements. Until the previous day, institutions and foreigners sold approximately KRW 4.4997 trillion and KRW 686.5 billion, respectively, in the KOSPI market, with institutions net buying on only two trading days.

The KOSDAQ index experienced a larger drop than the KOSPI. On the 14th, the KOSDAQ surged past 900 intraday for the first time in two years and five months, showing strong performance. This was driven by individual investors' liquidity and attention to beneficiary stocks from the New Deal policy. However, continued selling by institutions and foreigners caused the index to plunge about 10% from its peak. Institutions maintained net selling on all but three trading days this month in the KOSDAQ market, and foreigners sold stocks on all but five trading days. The total amount sold by these two groups in the KOSDAQ market reached KRW 1.7637 trillion and KRW 395.6 billion, respectively.

The greatest cause is identified as uncertainty originating from the U.S. Lee Yesin, a researcher at Shinhan Financial Investment, said, "As COVID-19 is spreading again worldwide and the U.S. presidential election approaches, policy momentum has entered a gap period," adding, "The resignation of Nikola's founder and the fading expectations after Tesla's Battery Day have accelerated the sorting out within growth stocks, leading to a slowdown in the stock market's upward momentum." The U.S. stock market, which hit record highs this year, has seen the S&P 500 and Nasdaq fall about 10% from their peaks. Technology stocks, which led the bull market, have begun to undergo corrections, spreading to other sectors.

It is expected that the correction in the U.S. and global stock markets will continue for some time. Roh Nokil, a researcher at NH Investment & Securities, said, "The delay in the passage of additional U.S. stimulus bills in Congress has increased doubts about economic recovery, the rise in COVID-19 deaths in the U.S., concerns over European shutdowns, and uncertainties related to the U.S. presidential election have negatively affected risk asset investment sentiment," adding, "Given that the recent stock market correction shows characteristics of risk asset avoidance, it is necessary to keep in mind the possibility that the correction phase will continue for some time."

The biggest question is how long the correction will last. Ha Inhwan, a researcher at KB Securities, explained, "If the visible causes of the stock market decline are economic policy uncertainty ahead of the U.S. presidential election and concerns over European re-lockdowns, then changes in the interest rate environment are the invisible changes," adding, "Recently, nominal interest rates have stagnated, but expected inflation has turned downward, causing real interest rates and real short-term interest rates to rise." In a situation where liquidity has driven the stock market up, a decline in expected inflation (rise in real short-term interest rates) is an important variable affecting asset price declines. Ha said, "When such changes occur, caution is needed regarding stock market corrections," and added, "A period correction is expected until early to mid-next month."

There is also an opinion that focusing on earnings is necessary amid ongoing market uncertainty. Lee said, "Until uncertainty is resolved, a strategy focusing on sectors with visible earnings in the third and fourth quarters is effective," adding, "Sectors with improved operating profit consensus for Q3 and Q4 compared to the previous month include IT, home appliances, and semiconductors."

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