Fading Santa Rally... "KOSPI May Drop to 2750 Level"

Omicron-Driven Volatility Expansion
Volatility Index Highest Since Late March
KOSPI Returns All Gains
KOSDAQ Also Drops to 960 Range

[Asia Economy Reporters Song Hwajeong and Hwang Junho] As the Omicron crisis expands, stock market volatility is increasing. Due to the rise in volatility, the fear index soared to its highest level since March. In the absence of clear buying entities, experts predict that the stock market could fall to the 2750 level this month.

As of 9:55 a.m. on the 1st, the KOSPI recorded 2863.92, up 24.91 points (0.88%) from the previous day. This marks a rebound after seven trading days. The previous day, the KOSPI closed at 2839.01, hitting its lowest point of the year. From the beginning of this year until the previous day, the KOSPI fell by 1.2%, giving up all gains made this year and turning negative. The KOSDAQ also dropped to the 960 level for the first time in a month and a half.

With increased market volatility, the KOSPI 200 Volatility Index (VKOSPI), known as the fear index, has risen in double digits for three consecutive days, reaching its highest level since the end of March. The VKOSPI closed at 23.23, up 11.04% from the previous day. The increase over the past three days was about 44%. At the beginning of the year, as the KOSPI surpassed 3000 for the first time ever and showed a steep rise, the VKOSPI surged to 35 but gradually stabilized and has been moving below 20 points since April. The recent sharp drop in the stock market due to Omicron concerns is interpreted as causing volatility to expand again.

As volatility increases, buying entities are also wavering. Since the COVID-19 outbreak, when volatility increased and the stock market fell sharply, individual investors actively bought to defend the index. However, last month, individuals recorded net selling for the first time this year on a monthly basis. They sold 1.7927 trillion won in the KOSPI and 604 billion won in the KOSDAQ. Foreign investors, who turned to net buying last month and recorded the largest net purchase of the year on a monthly basis, showed a selling bias after Omicron concerns emerged, contributing to the index decline. Institutions net sold 1.2806 trillion won in the KOSPI last month but net bought 115.5 billion won in the KOSDAQ.

The key word for the stock market this month can be summarized as 'uncertainty.' There is even analysis that Omicron’s transmissibility and severity risk could turn it into a 'black swan.' Additionally, concerns about liquidity reduction have overlapped as Jerome Powell, reappointed by the Joe Biden administration as Federal Reserve (Fed) Chair, shifted to a hawkish stance, unlike before. With a 2.42% drop on the 30th of last month, dubbed 'Black Tuesday,' if the cold wave continues, there is even a forecast that the KOSPI could fall as low as 2750.

Samsung Securities has set the expected KOSPI fluctuation range for this month at 2750 to 3000. Kim Yonggu, a researcher at Samsung Securities, said, "This is a triple whammy of global stagflation, hawkish Fed concerns, and Omicron," adding, "We must be cautious as the stock price and supply-demand dynamics (stock market volatility expansion) could fluctuate depending on external variables and news developments."

KB Securities suggested an expected KOSPI fluctuation range of 2750 to 3100 this month and emphasized focusing on technology growth stocks. Lee Euntaek, a researcher at KB Securities, analyzed, "Uncertainties such as Omicron and tapering acceleration are relatively unfavorable for emerging markets. The peak of tightening is expected to be next spring." He continued, "Whether Omicron is more severe than expected or not, if the pace of U.S. tapering accelerates, both scenarios are factors for economic slowdown, which is relatively favorable for technology growth stocks."

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