[Good Morning Stock Market] KOSPI Weighs Short-Term Pullback Possibility... Focus on Supply and Demand

[Asia Economy Reporter Oh Ju-yeon] The KOSPI, which had sharply risen at the end of the year and the beginning of the year, is showing high volatility between 3000 and 3200. With intraday fluctuations exceeding 100 points, analysts say it is currently in a short-term adjustment phase. The increased valuation burden, along with recent interest rate hikes and inflation concerns, may trigger investor anxiety. In particular, attention is focused on the 14th, the options expiration day, when volatility in foreign investor supply and demand may occur.

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◆ Sangyoung Seo, Kiwoom Securities Researcher = The Korean stock market started higher yesterday based on the stabilization of U.S. Treasury yields, but it fluctuated depending on changes in some stocks amid growing fatigue from the previous rise. However, with more stocks rising than falling, investor sentiment appeared positive, and the index closed higher as foreign investors switched to buying in the late session. The U.S. stock market also showed intraday gains amid stable Treasury yields, but market participants tended to quickly lock in profits, showing a search for direction.

Considering this, the Korean stock market on the 14th is expected to start around the flat zone and then change depending on foreign investors' futures supply and demand on the options expiration day.

Recently, large-scale selling centered on financial investment has continued in the stock market. Notably, financial investors had net purchases of 3.2 trillion won in December 2019 but sold 4.2 trillion won in January 2020, showing a pattern of large net purchases in December and liquidation in January in the past as well. This trend continued in December last year with net purchases of 2.9 trillion won, and since the beginning of this year, net sales of 1.6 trillion won have occurred, leaving about 1 to 2 trillion won worth of selling pressure remaining.

This is because the KOSPI futures basis undervaluation has continued into January, leading to program selling. If this trend continues today, large-scale selling by financial investors is inevitable. However, if the futures basis reverses to a strong trend, a reduction in the scale of financial investors' liquidation can be expected. Therefore, the market needs to pay close attention to the movement of the futures basis according to foreign investors' futures trends.

◆ Kyungmin Lee, Daishin Securities Researcher = The KOSPI has risen for three consecutive months and ten consecutive weeks since November. As a result, short-term overheating and valuation burdens reached their peak. The divergence rate from the 120-day moving average, known as the economic line, and the 200-day moving average, known as the trend line, expanded to the highest level since 1980, and the 12-month forward price-to-earnings ratio (PER) hovered around +3 standard deviations above the 3-year average.

In this situation of overheating and increased valuation burden, investor anxiety was triggered by inflation concerns, interest rate hike pressures, and the U.S. Federal Reserve's tapering (quantitative easing reduction) issue. This suggests that investors have exceeded the threshold of short-term overheating and valuation burdens they could endure.

A short-term correction and retracement process of the KOSPI seem inevitable for the time being. Although it is not a trend reversal, there are sufficient reasons to relieve the overheating and valuation burdens caused by the recent rapid rise.

Since 2003, the 12-month forward PER approaching +3 standard deviations above the 3-year average has occurred only four times. In all four cases, there was a support test around +1 standard deviation, after which the mid- to long-term trend was determined. In three cases, after securing support at the lower band of the valuation premium band (+1 to +2 standard deviations above the 3-year average), a secondary upward trend developed.

Currently, it is necessary to keep open the possibility of a support test at the KOSPI 12-month forward PER level of +1 standard deviation above the 3-year average, which corresponds to around 2560 points. Considering the upward revision speed of the 12-month forward earnings per share (EPS), the area around 2600 points is expected to be an important support level.

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