[Good Morning Stock Market] "KOSPI to Continue Liquidity-Driven Market Based on Favorable Supply and Demand"

[Asia Economy Reporter Eunmo Koo] The KOSPI has surpassed the 3000 mark. Although it might be time to feel the price burden after consecutive record highs, analysis suggests that the liquidity-driven market is likely to continue based on favorable supply and demand conditions.

◆Daehun Han, SK Securities Researcher=The era of KOSPI 3000 has finally begun. This year, the liquidity-driven market continues, and the enthusiasm in the stock market remains strong. Traditionally, the Buffett Indicator (market capitalization of KOSPI and KOSDAQ / nominal GDP), which gauges market overheating, points to overheating, but the Fear Of Missing Out (FOMO) sentiment is reflected, sustaining buying pressure from individual investors. Since the beginning of the year, a net purchase of 3.7 trillion KRW has been made in just four trading days combining KOSPI and KOSDAQ. Except for the price burden due to the rapid rise in a short period, there are no events that could impact the stock market. The environment surrounding the stock market remains favorable. Although the seemingly high 3000 level has been reached, it is now necessary to look higher, led by the liquidity-driven market.

Currently, the stock market’s waiting funds have exceeded 130 trillion KRW. Investor deposits have surpassed 68 trillion KRW, and CMA balances have also exceeded 66 trillion KRW. Securities firms’ margin loans are approaching 20 trillion KRW. Comparing M2 and market capitalization makes this clearer. The average balance of M2 has exceeded 3160 trillion KRW, and the domestic stock market’s market capitalization relative to M2 is at 76%, which is lower than just before the financial crisis (90%). Over the past decade, the KOSPI remained stagnant and did not reflect M2, but as corporate asset values have risen, the gap is narrowing. In other words, although there is short-term overheating, the environment still allows for additional capital inflows. Therefore, the liquidity-driven market is expected to continue for the time being.

◆Daejun Kim, Korea Investment & Securities Researcher=Next week, the KOSPI band is projected to be between 3000 and 3100. Although it might be time to feel the price burden after the record-breaking rise at the year-end and New Year, the KOSPI is expected to continue moving upward regardless. Considering the market sentiment, this is not unreasonable. Key indicators such as South Korea’s exports and the US ISM Manufacturing Index have improved compared to the previous month, boosting confidence in the economy, and expectations for COVID-19 vaccines remain strong. Additionally, as individuals and institutions alternate in buying stocks, there is a possibility that the KOSPI will reach a higher level.

Next week’s events will also contribute to maintaining a favorable atmosphere. From the 11th, CES 2021, the world’s largest electronics exhibition, and the JP Morgan Healthcare Conference, a pharmaceutical and bio event, will take place. As every year, new technologies and products will be introduced, and the stock market, always thirsty for new things, will use these as catalysts for stock price increases. Especially since the sectors directly affected by these two events account for 46% of the KOSPI’s market capitalization, the movements in related sectors could determine the overall market direction.

Another variable to watch closely is expected inflation. On the 6th, expected inflation in the US rose to 2.09%. Considering the policies likely to emerge after the Democratic Party’s Blue Wave and the establishment of the Biden administration, the level is expected to rise further. Similarly, expected inflation is also rising in South Korea. This indicates growing optimism regarding the future economy and prices. The expected inflation announced recently by the Bank of Korea is 1.8%, but there is a discrepancy with market-measured figures, leaving room for further increases. Looking back at past experiences, when expected inflation rises, cyclical sectors including materials have performed well, so it is necessary to keep an eye on these sectors this time as well.

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