[Good Morning Stock Market] "Short-term Overheating of KOSPI is an Uncomfortable Issue... Attention Needed on Sectors with Low Foreign Investment Ratio"

[Image source=Yonhap News]

[Asia Economy Reporter Eunmo Koo] The domestic stock market hit an all-time high as expectations for the January effect stimulated the inflow of funds from individual investors. However, despite favorable supply-demand conditions and economic outlook, there are concerns about the possibility of increased short-term volatility. Consequently, the tug-of-war between 'overheating caution' and 'momentum strengthening' among investors is likely to intensify. In this context, investing in sectors with less price burden and remaining supply-demand capacity is reasonable, and considering that foreign buying may strengthen following the weak dollar, attention should be paid to industries where their weighting is relatively low.

◆Seonghoon Seo, Samsung Securities Researcher=Because various economic decisions rely on calendar bases, specific patterns can be observed in financial markets at major turning points such as year-end and beginning of the year. The January effect is a representative phenomenon, indicating that stock market performance in early January stands out compared to other periods. The background includes the resumption of fund execution halted by institutional investors' year-end accounting settlements, the inflow of various bonuses paid at year-end into the January stock market, and the high proportion of optimism within the market reflecting the new year's sentiment. These factors are believed to still be in effect this January.

First, domestic exports announced on the 1st increased by 12.6% last month, exactly double the market expectation of 6.3%. Additionally, the highest export amount ever recorded in December was also surpassed. The confirmation of solid export momentum despite the resurgence of COVID-19 is expected to stimulate market expectations for fundamental improvement. Furthermore, the full implementation of the U.S. stimulus package is another factor driving early-year economic recovery forecasts. The recent rise in market peripheral funds, including deposits, despite active buying by individuals, suggests continued money movement in household assets. Foreign investors, despite buying in the fourth quarter, have yet to replenish even a quarter of their pandemic-era sell-offs. The dollar index being near a three-year low will likely accelerate their comeback.

However, apart from the rise, signs of overheating in the domestic stock market are ongoing. Based on the KOSPI, it has risen for all but four of the last 20 trading days, placing many technical indicators at critical levels. While the favorable supply-demand conditions and bright economic outlook mentioned earlier are valid in the mid-to-long term, some caution regarding short-term volatility expansion is necessary at this point. In particular, if the Democratic Party wins both seats in the Georgia Senate election on the 5th local time, short-term noise may arise. U.S. market participants have tended to favor a balanced policy structure of divided government.

If the Democrats control both the White House and Congress, concerns about corporate tax hikes and stricter regulations may unsettle investors. This could also trigger a correction in the overheated overall stock market. However, even if a blue wave materializes, the scale and duration of the correction are expected to be limited. Major corporate-related bills such as corporate tax increases face considerable opposition within the Democratic Party, making a majority difficult to secure physically. Additionally, the Democratic Party's stance on expanding fiscal stimulus is clearly positive for the stock market. Above all, stronger fiscal policy is likely to induce further dollar weakness, which could stimulate preference for non-U.S. regional stock markets.

Having lightly passed key resistance levels on the first trading day of January, index pressure has increased again. Therefore, the tug-of-war between 'overheating caution' and 'momentum strengthening' among investors is likely to intensify. In this scenario, a compromise would be to invest in sectors with less price burden and remaining supply-demand capacity. Considering that foreign buying may strengthen following the weak dollar, it is necessary to maintain interest in industries where their weighting is relatively low. Non-ferrous metals, chemicals, transportation equipment, energy, and securities sectors have relatively low foreign market capitalization weightings and align with current macro conditions. Although IT hardware currently faces considerable short-term price pressure, given the recovery in business conditions and earnings and its lower valuation burden compared to global big tech, the mid-to-long-term outlook remains optimistic.

◆Sangyoung Seo, Kiwoom Securities Researcher=Yesterday, the Korean stock market reached a record high near 2,950 points, supported by active net buying from individual investors. The market's characteristic that day was not only this supply-demand factor but also the strength driven by upward revisions of target prices for semiconductor-related companies, a surge in electric vehicle sales in China boosting the secondary battery sector, and strength in renewable energy-related automobile sectors. In summary, the market movement yesterday can be described as 'supply-demand focused on issues.' This reflects a concentration of supply-demand on issues centered around large-cap stocks, causing the index to surge. This suggests a market focused more on specific stocks and sectors rather than a broad-based rise across the Korean stock market.

Meanwhile, the U.S. stock market showed weakness as profit-taking increased and selling pressure emerged. However, it is important to note that stocks with positive news flow remained firm. Notably, gold, crude oil, semiconductor equipment, and electric vehicle-related stocks showed strength. Considering this, the Korean stock market is likely to experience a correction due to profit-taking selling pressure, but a stock market environment focusing on individual sectors and stocks rather than the index is expected to continue.

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