Disappointing Summer Rally, Will It Revive in August?

Summer Stock Price Rise Phenomenon
Hampered by 4th Wave of COVID-19
Global Markets and KOSPI Both Falter

Financial Sector Sees Delta Variant as a Variable
KOSPI Expected Range 3100~3400 Predicted

[Asia Economy Reporter Ji Yeon-jin] Amid the sweltering heatwave, the 'summer rally' did not materialize. The summer rally refers to the phenomenon where fund managers, heading out for summer vacations, buy stocks in anticipation of the autumn market, causing stock prices to rise during the summer. However, this year, the fourth wave of COVID-19 hindered the summer market's strength.

On the 29th, the KOSPI opening price was 3248.49, 1.02% lower compared to the beginning of this month. Earlier this month, the domestic stock market showed sluggish movement after surpassing 3300 on the 6th amid strong expectations for a summer rally. Recently, with the spread of COVID-19 centered on the Delta variant, the global stock markets, including the KOSPI, have been faltering.

According to the Central Disease Control Headquarters, as of midnight on the same day, the number of new domestic confirmed cases was 1,674, marking a four-digit figure for 23 consecutive days since the 7th. The previous day saw a record high of 1,896 new confirmed cases. Due to the spread of the infectious disease, the highest level of social distancing (Level 4) in the metropolitan area has continued for four weeks, and consumption, a key factor for economic recovery, is expected to slow down, which analysts say has dampened enthusiasm for stock market investment.

Previously, the possibility of a 'summer rally' was highly anticipated in the domestic stock market. With confirmed sharp improvements in corporate earnings, there was strong optimism that the KOSPI would achieve the longest record of nine consecutive months of gains due to expectations of economic recovery. According to an online survey conducted by Samsung Securities from the 22nd to 24th of last month among 782 individuals with financial assets exceeding 1 billion KRW, 63.9% of high-net-worth individuals expected a summer rally. Among them, 32% believed that the stock price could exceed 3600 on the KOSPI during July and August. The main reasons for expecting a summer rally were 'full-scale improvement in corporate earnings' at 47.0%, followed by 'expectations of overcoming COVID-19 across society' at 46.8%.

For the August stock market, the Delta variant is also expected to be a variable for the summer rally. The sluggish KOSPI this month is attributed to continued foreign selling amid a strong dollar, but while the domestic export growth rate in the first half of the year reached an all-time high, the continued weakness of the Korean won indicates that the domestic economy excluding exports is fragile. Therefore, if the won remains weak next month, it may be difficult for foreigners to switch to net buying. An Jin-cheol, a researcher at Korea Asset Investment Securities, said, "The most important factor is when the fourth pandemic wave in Korea will peak and decline, leading to the easing of social distancing." He added, "If the peak comes before mid-August, expectations for a summer rally could be revived." Korea Asset Investment Securities projected the KOSPI range for next month to be between 3100 and 3400 and analyzed that the spread of the Delta variant could extend the global low-interest-rate trend, which might be a positive factor for the stock market.

Daishin Securities and Meritz Securities also forecast the KOSPI range for next month as '3200?3450' and '3200?3300,' respectively. Lee Jin-woo, head of investment strategy at Meritz Securities, said, "We expect August to show a mild rebound rather than a rally."

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