[Good Morning Stock Market] KOSPI, Decrease in Trading Volume and Earnings Slowdown... "Short-term Volatility Expansion"

Rising Stock Market on Expectations of Additional US Stimulus
Dollar Weakness and Oil Price Increase on Economic Recovery Optimism

KOSPI Trading Volume at 20 Trillion Won Level... Decline in Trading Volume
Increase in Companies Missing Market Expectations for Q4 Earnings

[Image source=Yonhap News]

[Asia Economy Reporter Minji Lee] While the US stock market recorded gains amid expectations of economic stimulus, opinions have emerged that the domestic stock market may experience increased short-term volatility due to a slowdown in the earnings of listed companies and a decrease in trading volume. Over the past weekend at the New York Stock Exchange (NYSE), the Dow Jones Industrial Average closed up 0.3%, the S&P 500 rose 0.39%, and the Nasdaq index increased by 0.57%.

◆ Yumi Kim, Kiwoom Securities Researcher = The US dollar weakened as risk asset preference continued amid expectations for a $1.9 trillion stimulus package. January's US nonfarm payrolls increased by 49,000, up from December last year, but fell short of market expectations, strengthening the momentum for additional stimulus policies.

With growing expectations for economic recovery, risk appetite in financial markets increased, sustaining the rise in international oil prices. Additionally, OPEC+ (the Organization of the Petroleum Exporting Countries (OPEC) and major non-OPEC oil-producing countries including Russia) is expected to maintain supply levels below demand, reinforcing expectations of tight supply and demand in the oil market, which further stimulated oil price increases.

◆ Kyungmin Lee, Daishin Securities Researcher = The short-term direction of the KOSPI is ambiguous. Last week, the KOSPI surpassed the 3,100 level and recovered the 20-day moving average (psychological line), but it is difficult to expect a resumption of the upward trend. In a phase where the short-term direction is unclear, trading volume is a key indicator to gauge market strength.

The KOSPI's trading volume has rapidly declined since peaking at 44 trillion won in early January. Looking at trading volumes during fluctuations, on January 28 and 29, during the sharp drop in the KOSPI, trading volume slightly increased from 23 trillion won to 24 trillion won. However, during last week's rebound, trading volume remained in the 20 trillion won range and was only 19.8 trillion won on the 5th. Trading volume suggests a slight dominance of selling pressure. In similar situations last August and October, the KOSPI underwent a roughly three-month correction period.

The reason for expecting the KOSPI to take a short-term breather is the poor earnings performance of companies in the fourth quarter of last year. Among 184 US S&P 500 companies, over 80% exceeded market expectations. In contrast, only 43% of 106 KOSPI companies surpassed operating profit forecasts. The KOSPI's fourth-quarter operating profit and net profit fell short of estimates by 2.1% and 18.2%, respectively.

Although the US stock market hit record highs, the Philadelphia Semiconductor Index closed lower, which is a cause for concern. This makes it difficult for the Korean stock market, which has a high semiconductor weighting, to strengthen its short-term upward trend. Additionally, the rebound in the won-dollar exchange rate and large-scale foreign futures selling are factors to watch out for. Last week, foreigners sold an additional 1.37 trillion won in the futures market. Since the KOSPI surpassed the 2,800 level, the cumulative foreign futures selling has reached 6.4 trillion won.

◆ Jiyoon Kim, Daishin Securities Researcher = Amid ongoing fourth-quarter earnings announcements, the proportion of companies missing consensus (market expectations) is higher than those exceeding it. The ratio of companies falling short of operating profit consensus is 56.5%. Considering that fourth-quarter earnings have historically missed consensus, it is highly likely that both operating profit and net profit will ultimately fall short of market expectations.

By sector, energy, semiconductors, shipbuilding, banking, and steel reported earnings below consensus. Sectors exceeding market expectations include insurance, display, automotive, construction, and telecommunications. By market capitalization, mid- and large-cap stocks showed better performance compared to small caps. Based on operating profit, KOSPI large-cap and mid-cap stocks exceeded market expectations by 1.8% and 35.1%, respectively, while small caps fell short by 41.1%.

Considering that the securities industry is revising upward the operating profit consensus for companies this year, it is expected that the pace of earnings forecast increases may slow down in the short term. The recent slowdown in the recovery of global economic indicators, due to economic lockdown measures following a surge in COVID-19 cases in major countries in the second half of last year, is affecting the deceleration of earnings upward revisions.

Given the gap between earnings and stock prices, short-term market volatility is expected to increase. Approximately 200 days after the KOSPI hit its low in March last year, the gap between the current stock price and the 12-month forward EPS was 96.1%. Considering that the highest gap between stock prices and earnings during the post-2008 financial crisis bull market was 72.3 percentage points, the current pace of stock price increases is burdensome. A slowdown in the improvement of earnings forecasts in the short term is concerning.

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