The Signal Sent by Numbers is More 'Cautious' Than 'Expectant'... KOSPI Struggles Despite a Refreshing Breakthrough of 3200

[Asia Economy Reporter Lee Seon-ae] As the KOSPI index continues to hover without decisively breaking through the 3200 level, investment advice emphasizing 'caution' over 'expectation' is gaining traction. Various numerical indicators currently point to a conservative outlook.

According to the financial investment industry on the 7th, this year's KOSPI operating profit estimates have been slightly revised downward from approximately 232 trillion won to recently 230 trillion won. This appears to be influenced by concerns such as China's regulations and new COVID-19 variants, rather than optimism from accelerated vaccination efforts. Consequently, the KOSPI's earnings revision ratio has also entered a downward trend. The earnings revision ratio is the figure obtained by dividing the number of stocks with upward revisions in earnings per share (EPS) by the number of stocks with downward revisions in EPS.

Researcher Kang Hyun-ki of DB Financial Investment analyzed, "The decline is expected to continue from the peak in the second quarter of this year through the third quarter," adding, "Considering the timing characteristics, the decline factors include changes in liquidity conditions such as Korea's interest rate hikes and the U.S. tapering (asset purchase reduction) process, which may weaken the degree of economic improvement, and a cautious approach to KOSPI corporate earnings estimates has been incorporated."

The price-to-earnings ratio (PER) of the KOSPI is also decreasing. The decline in the earnings revision ratio makes it difficult to maintain strong expectations for future EPS, and the drop in PER at this point is seen as partially reflecting doubts about EPS.

Signals indicating that the market's support for stock price increases has weakened have also been detected. The KOSPI's advance-decline ratio (ADR, number of rising stocks / number of falling stocks) has entered a downward trend. In the past, there have often been cases where the ADR ratio declined in advance of major turning points in the stock market. This phenomenon occurs as investor caution increases and market momentum concentrates on a small number of stocks.

Researcher Kang stated, "Signals warning of risk are accumulating in terms of supply and demand changes due to liquidity environment shifts, fundamentals, valuation, and investor sentiment," and recommended, "Rather than following the immediate stock market rebound, a conservative approach is advised for now."

Major indicators also send conservative signals. Brokerage-related indicators are sluggish. The combined average daily trading volume of the stock market, which had increased year-on-year every month since October 2019, showed a decline for the first time in 22 months, and the growth rate of credit extension is also slowing. Researcher Jeong Tae-jun of Yuanta Securities said, "Although the absolute levels of both trading volume and credit extension have not changed significantly as the market consolidates, liquidity is expected to gradually decrease due to further base rate hikes and strengthened household loan regulations, so both indicators are expected to decline."

Interest rate environment and nominal GDP (Gross Domestic Product) levels are also indicators that make it difficult to expect a strong stock market rise. Researcher Jeong explained, "Typically, short-term interest rates indicate the direction of the base rate, and long-term rates reflect risk aversion tendencies. The current situation suggests additional tightening and increased risk aversion," adding, "Furthermore, the nominal GDP, considered an appropriate level for market capitalization, is significantly lower than the current market capitalization even considering this year's 4% growth rate, so it is expected to be difficult for the stock market to break out of consolidation and rise meaningfully."

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