Investment Sentiment Halved... Where Is the Stock Market Headed?

[Asia Economy Reporter Junho Hwang] After the stock market surpassed its peak last month, the investor sentiment index retreated to 50%. This is analyzed as investors standing at a crossroads due to profit-taking following the new high, the spread of the COVID-19 Delta variant, and other factors. While the securities industry forecasts a possible short-term correction, there are also opinions emphasizing the likelihood of an upward trend.

According to Yuanta Securities on the 5th, as of the 2nd, the 10-day investor sentiment index for the KOSPI stood at 50%. This is the first time it has been in the 50% range since the 2nd of last month. The investor sentiment index calculates the number of days the market rose over the previous 10 trading days before the reference date. For example, if the market rises 5 out of 10 days, the index is 50%. The securities industry generally considers the market overheated if this figure exceeds 75%, and sees the market as depressed if it falls below 25%.

The investor sentiment index, which was in the 80% range during the breakthrough of 3300 points from the 23rd to 25th of last month, has been gradually declining. It dropped to 70% on the 28th, recorded 60% on the 29th and the 1st of this month, and then fell to 50%.

The decline in investor sentiment is also reflected in KOSPI trading volume. The KOSPI trading volume fell to 1.067 billion shares, the lowest since the 24th of last month. Meanwhile, investor deposits, classified as standby funds for market investment, increased by 2.9862 trillion KRW in one day, approaching 70 trillion KRW (69.1191 trillion KRW on the 1st).

Cha Hyun-gi, a researcher at Cape Investment & Securities Research Center, analyzed, "Investor sentiment is weakening due to concerns over additional restrictions caused by the spread of the COVID-19 Delta variant and the increase in confirmed cases." He added, "The release of profit-taking sell orders by institutions following the new highs in KOSPI and KOSDAQ throughout the year also supports this tendency."

Han Ji-young, a researcher at Kiwoom Securities, forecasted, "Although concerns about inflation have somewhat eased, it is difficult to say that the sensitive market phase has ended. There is a possibility that the market heat will cool down temporarily due to uncertainties around the US Consumer Price Index (CPI) this month and concerns over the slowdown in domestic manufacturing and export growth."

The KOSPI surpassed the 3,300 mark for the first time in history. On the 25th, the KOSPI index opened at 3,289.18, up 3.08 points (0.09%), and extended its gains to break the intraday record of 3,292.27 set the previous day. The photo shows the Hana Bank dealing room in Jung-gu, Seoul, on that day. Photo by Kim Hyun-min kimhyun81@

On the other hand, there is a view that sees the decline in investor sentiment as short-term. First, the current market is at a breathing point after breaking the peak, and attention should be paid to the fact that the decline is gradual. Seo Jung-hoon, a researcher at Samsung Securities, said, "It is encouraging that unlike in January and May, there is no sharp drop after approaching new highs," interpreting this as "investors are not solely absorbed in uncertainty."

Additionally, Seo said, "The valuation burden of the index has also decreased, which is the result of earnings estimates rising more steeply than stock prices." In fact, the 12-month forward price-to-earnings ratio (PER) based on MSCI Korea was around 14 times when the KOSPI first crossed 3000 points earlier this year, but recently it has dropped to 11.6 times. Therefore, Seo's analysis suggests that it is more reasonable to predict an upward direction when looking only at the index's trajectory.

Lee Kyung-min, a researcher at Daishin Securities, said, "The overall environment surrounding the domestic stock market and the medium-term earnings outlook are favorable," and forecasted, "Even if a price correction phase emerges this month, it is necessary to respond from the perspective of accumulating momentum for the rise until the end of the year."

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