[Good Morning Stock Market] This Year's First 'Four Witches Day'... Market Direction

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[Asia Economy Reporter Park Jihwan] On the 11th, attention is focused on whether the KOSPI will succeed in reversing its recent five consecutive trading days of decline. Overnight, the U.S. House of Representatives passed a massive additional fiscal stimulus package worth $1.9 trillion (approximately 2,100 trillion KRW), which is expected to act as a positive factor for the domestic stock market.

However, this day is the first 'Quadruple Witching Day' of the year, when the expiration dates of stock index futures, stock index options, individual stock options, and individual stock futures coincide, raising concerns about increased market volatility. Typically, on Quadruple Witching Days, a flood of closing trades occurs near the end of the session, resulting in overall market declines and heightened volatility. Since the domestic stock market has recently become vulnerable due to falling stock prices and rising volatility, it is analyzed that even limited selling pressure could lead to expanded market volatility.

◆ Seo Sangyoung, Kiwoom Securities Researcher = The Korean stock market rose by 1% the previous day, buoyed by strong U.S. stock markets, but turned downward as China's inflation exceeded expectations and liquidity absorption issues surfaced. Nevertheless, the passage of the additional stimulus package by the U.S. Congress indicates continued liquidity supply in the U.S., which is positive for investor sentiment despite concerns over China's liquidity absorption. In particular, the passage of the U.S. stimulus package has expanded expectations for economic normalization; additionally, the weakening of the U.S. dollar, rising international oil prices, and falling government bond yields are favorable for foreign investor demand, which is also supportive of investor sentiment.

However, attention should be paid to foreign investors' supply and demand in the futures market due to the expiration of futures and options contracts. Market making for mini KOSPI futures by financial investment firms will end. Until now, financial investment firms have engaged in significant hedging trades, but this will decrease due to the new measure. As a result, the 'wag the dog' phenomenon, where changes in the futures market by foreign investors lead to amplified changes in the spot market, is expected to intensify. Especially since this will take effect from the 15th, issues related to the liquidation of hedging positions may arise on the futures and options expiration day, making intraday price fluctuations inevitable. Considering this, the Korean stock market is expected to experience increased volatility depending on foreign investors' futures trends, and attention should be paid to cyclical stocks benefiting from the passage of the U.S. stimulus package.

◆ Noh Donggil, NH Investment & Securities Researcher = A notable point on the March derivatives simultaneous expiration day is the impact of individual stock futures position liquidation. Since the ban on short selling, the domestic stock market has been in a prolonged state of backwardation (futures prices undervalued compared to spot prices). Continuous backwardation in individual stock futures has activated arbitrage trading.

Investors are expected to liquidate individual stock futures positions on the March simultaneous expiration day. Entities utilizing individual stock futures for arbitrage opportunities include financial investment firms, mutual funds, pension funds, and foreign investors. Among these, financial investment firms and mutual funds are expected to liquidate positions, influencing the supply and demand of related stocks in the spot market. Attention should be paid to stocks estimated to have short-selling arbitrage positions, as net buying inflows in the spot market during the simultaneous closing auction on the expiration day may lead to increased price volatility.

If the difference between the stock price and backwardation exceeds the current transaction tax (0.23%), arbitrage opportunities arise. Stocks with backwardation levels exceeding the transaction tax and with individual stock futures open interest high relative to the 20-day average trading volume include Doosan Infracore, LG Display, GS Construction, KT, Netmarble, LG Household & Health Care, and Celltrion Healthcare, in that order. These stocks are expected to see net buying inflows in the spot market in the form of position liquidation near the closing price on the March futures and options simultaneous expiration day.

◆ Jeon Gyun, Samsung Securities Researcher = Regarding the March expiration, program trading is expected to be limited, but a selling bias by financial investment firms is anticipated. This is due to the liquidation of year-end dividend-related arbitrage positions and the possible liquidation of holdings following the end of market making in the mini futures market. Especially, since the KOSPI stock market's structure has become vulnerable due to recent price declines and rising volatility, market volatility may expand even with limited selling pressure.

◆ Kim Ilhyuk, KB Securities Researcher = With the passage of the additional support package, economic forecasts have been revised upward. The average forecast for U.S. GDP growth this year by economists was sharply revised from 4.95% last week to 5.5%. This is due to upward revisions in estimated contributions from consumer spending and government expenditure. Reflecting expectations for economic recovery, the upward trend is expected to continue, centered on cyclical sectors such as materials, finance, industry, energy, and consumer discretionary.

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