[Good Morning Stock Market] "KOSPI in a Breather Phase, Rotation Market Expected to Continue Until Year-End"

Short-term Overheating Concerns Grow Ahead of 3,000-Point Milestone Next Year
Funds Shift to Construction, Energy, Cosmetics, and Apparel Stocks
"Prepare for Real Economy Shock When Liquidity Effect Disappears"

[Asia Economy Reporter Minji Lee] As the KOSPI fluctuates around the 2750 level, it is expected to enter a consolidation phase with a rotation market for the time being. The won-dollar exchange rate has been rising for two consecutive weeks so far, and foreigners, who had driven the index up, are increasing their net selling volume, indicating that the upward momentum has somewhat weakened.

[Image source=Yonhap News]

◆ Kyungmin Lee, Researcher at Daishin Securities: Although the KOSPI is expected to show a strong upward trend next year and enter the 3000 era, a rotation market is anticipated in the short term. Looking at last week's situation, there was a large net buying volume in construction, utilities, energy, cosmetics, apparel, and shipbuilding sectors. These sectors had poor annual returns and were sidelined in the rising phase since last month, whereas sectors that ranked high in annual returns such as healthcare, automobiles, chemicals, and software showed weak performance.

Currently, the KOSPI is in a state of short-term overheating and valuation burden, and it is judged that there is a greater risk of decline rather than surpassing the 2700 level by the end of the year. Although positive upward-biased sentiment continues and the bullish atmosphere is maintained, the short-term direction of the financial market can change at any time depending on changes in investor sentiment. Notably, after various event issues and economic indicator results were confirmed in the latter part of last week, the global financial market appeared to be more sensitive to variables that fell short of expectations rather than cheering for good news.

The greater the market's cheer, the stronger the good news and triggers needed for further rises. Favorable issues and events have already been largely reflected in the global financial market. The spread of COVID-19 is increasing, and major countries' economic indicators have been slowing since last month. Furthermore, the virtuous cycle of won appreciation and foreign net buying, which was the driving force behind the KOSPI's rise, is not appearing. Although the KOSPI continues its record-high streak, attention should be paid more to signs of cracks rather than focusing solely on the upward trend.

◆ Soyeon Park, Researcher at Korea Investment & Securities: Currently, the financial market is coexisting with concerns that stimulus measures may weaken following the start of vaccinations and fears that volatility could sharply increase if Korea fails to meet the heightened market expectations amid the winter resurgence of COVID-19.

Looking back at the collapse of the IT bubble in 2001, the market lost all momentum as stimulus measures were reduced. During the economic slowdown caused by the IT bubble collapse, the Federal Reserve sharply cut the benchmark interest rate from 3.5% to 1.75% after the 9/11 terrorist attacks in September 2002 to provide emergency liquidity. Subsequently, economic stabilization accelerated with stimulus measures such as the Bush administration's tax cuts.

However, from 2002, as the benchmark interest rate entered a freeze period, the stock market's upward momentum slowed, and the risky aspects of the real economy, which had been masked by excessive liquidity effects, began to surface. Additional rate hikes were implemented twice in November 2001 and June 2003, and the stock market fell further.

Clearly, the current situation differs from the IT bubble period. There is no overinvestment problem, nor is there a cash shortage among companies. However, the outlook that all problems will be resolved by vaccines and the economy will fully reopen is overly optimistic. At the point when liquidity effects diminish and stimulus strength weakens, preparations should be made for the possibility of shocks to the real economy.

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