[Good Morning Stock Market] Pause for Breath: 'Tug of War Between Individuals and Institutions'... Difficult to Gauge the Direction of the Variable 'Foreigners'

Box Range Sideways... No Sharp Drop Due to Liquidity, 'Caution for Short-Term Volatility'
Insurance, Securities, Non-Ferrous Wood, Cosmetics & Apparel Holding Ground with Earnings Expectations Valid

[Asia Economy Reporter Lee Seon-ae] The KOSPI index, which surpassed 3,200 points earlier this year, is expected to remain in a sideways range for the time being. Since it rose sharply at the end and beginning of the year, some time is needed to resolve short-term overheating concerns, leading to a judgment that the upward momentum will somewhat slow down.

Relative Momentum Slowdown

On the 15th, the securities industry forecasted that the KOSPI would continue to move sideways within a range of 3,000 to 3,200 points this week. Although expectations remain high due to U.S. economic stimulus packages and COVID-19 vaccine-related news, valuation pressures are acting as downward factors.

During the Lunar New Year holiday, the U.S. stock market continued its upward trend, reaching new highs, and Japan's Nikkei 225 and China's Shanghai Composite Index also hit yearly highs before the holiday. In contrast, the KOSPI surged sharply in January but has since been moving sideways, failing to establish a clear direction around the 3,100-point level.

Seo Sang-young, a researcher at Kiwoom Securities, said, "The U.S. economic stimulus package is likely to be delayed, and all earnings announcements have been completed. Since there is no upward momentum, the domestic stock market is expected to move sideways for the time being."

However, the dominant view is that liquidity will not decline sharply. Jung In-ji, a researcher at Yuanta Securities, said, "The KOSPI is showing relative momentum slowdown due to the sharp rise, and it is a difficult time for strong directional moves, but liquidity flow is currently not bad. Recently, the KOSPI's 20-day moving average has turned downward, acting as resistance, indicating somewhat insufficient upward energy. However, considering the previous movements, it can be understood as following the robust global stock market trend." Although short-term sluggishness is natural, since the index's rise rate is low compared to the end of last year, even if the current relatively weak trend continues, it remains strong from a medium-term perspective.

Researcher Seo also emphasized, "Although various factors increase volatility, even if corrections continue, the stock market will not fall due to high liquidity."

Sector Differentiation... Keep the Bat Short

The securities industry unanimously agreed that since the KOSPI's rise speed is likely to slow down, sectoral return differentiation is expected, requiring meticulous investment strategies. When the rise speed is fast, sectors generally rise, but when the speed slows, sectoral differentiation increases.

According to Shinhan Financial Investment, the KOSPI rose 14.3% and 10.9% in November and December last year, respectively. The number of sectors that rose was 26 and 22, respectively. In contrast, in January this year, the return was 3.6%, and the number of rising sectors was 16, indicating a slowdown in the rise speed. The degree of sectoral differentiation can be measured by the average monthly sector return difference, and January's figure was 1.26 percentage points, the highest since February 2008.

Researcher Bae Han-joo of Shinhan Financial Investment said, "In the short term, as the index's rise speed slows, interest in earnings is likely to expand. Steel, finance, and consumer staples sectors, which have underperformed relative to earnings improvement, are likely to show strength." He added, "In the mid to long term, attention should be paid to existing leading sectors that can drive KOSPI valuation reappraisal. Sectors with currently favorable earnings momentum and expected to lead the market rise include chemicals, energy, automobiles, IT hardware, and semiconductors."

Lee Kyung-min, a researcher at Daishin Securities, said, "The KOSPI is expected to continue a breathing phase due to running fast, ahead, and far, so it is necessary to keep the bat short until confirming the resumption of the KOSPI's upward trend." He added, "The slowdown in KOSPI's upward momentum suggests that sector and stock responses are more effective than market-wide responses. We propose a gatekeeping and short-term trading strategy centered on sectors with price merits and valid earnings expectations such as insurance, securities, non-ferrous metals, cosmetics, and apparel among KOSPI sectors."

U.S.-China Economic Indicators and FOMC Minutes as Variables

Expectations for the U.S. economic stimulus package are expected to be maintained. Some House committees, including the Tax and Trade Committee, have approved major stimulus measures such as cash payments. The House plans to consolidate these bills for a full vote once each committee approves them. Since the Democrats have a clear majority in the House, the bill's passage is expected to be smooth.

The minutes of the January Federal Open Market Committee (FOMC) meeting, scheduled to be released on the 18th, are also a focus of market attention. The early-year debate over the Fed's early tapering (reduction of bond purchases) has subsided, but the Fed officials' views on the future economy have not yet been confirmed.

Kim Dae-jun, a researcher at Korea Investment & Securities, said, "If there is an opinion that the Fed will maintain its policy stance regardless of inflationary pressures as previously declared, risk asset preference will increase, and foreigners may resume net buying of stocks."

He added, "In a situation where internal momentum has weakened, external variables are being closely watched. U.S. and China real economic indicators and FOMC minutes will be key variables." He also said, "Since the U.S. stock market has risen significantly, sensitivity to bad news is currently higher than to good news, so short-term volatility should still be approached cautiously."

Institutional Selling Spree 'Supply-Demand Instability'

Supply-demand instability due to institutional selling pressure is expected to continue. From the first trading day on January 4 to February 10, the day before the Lunar New Year holiday, institutions' net selling amounted to 24.6004 trillion KRW. During the same period, foreigners also net sold 4.7772 trillion KRW, while individuals alone net bought 29.9048 trillion KRW, defending the stock price decline. All institutional investor groups are participating in net selling, including financial investment, insurance, trust, private equity, other financial institutions, and pension funds. Pension funds sold the largest volume, amounting to 10.8563 trillion KRW.

Researcher Kim said, "All institutional players such as financial investment, trust, private equity, and pension funds are selling stocks. The problem is that this trend is unlikely to end soon." He added, "Each has different management strategies, and some, like trust and private equity funds, are exposed to redemption pressure and must sell stocks. However, individuals continue to absorb this supply, so a significant index decline is unlikely."

As the tug-of-war between institutions and individuals continues, the market direction is expected to be ultimately decided by foreigners. Choi Yoo-jun, a researcher at Shinhan Financial Investment, said, "Foreigners' influence on KOSPI supply-demand is increasing, and returns vary significantly depending on foreigners' net buying or selling." He added, "Foreigners have net sold over 4.8 trillion KRW this year, so it is time to consider the timing of switching to a net buying trend. Domestic and foreign interest rates, exchange rates, and earnings momentum will be key variables."

Lee Jae-sun, a researcher at Hana Financial Investment, said, "For a sustained upward trend in the index, it is important that the buying strength of individuals, who were the main players in the January bull market, is maintained or that foreigners' supply-demand, which has determined the index direction so far, improves. If individuals' buying strength weakens, foreigners' influence on the index level will inevitably increase, but currently, foreigners' supply-demand has been neutral since the beginning of the year," he evaluated.

Kang Bong-joo, a researcher at Meritz Securities, forecasted, "Time is needed to absorb the elevated index, so after some correction, additional rises can be sought." He explained, "With institutional selling and foreigners remaining neutral, it is difficult for individual investors alone to strongly push up the index. However, if people gain confidence that this will last until next year, additional rises will be possible."

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