Is the 'Peak Out' of Stock Market Headwinds Approaching?

On the 21st, the KOSPI opened at 2,981.67, up 18.67 points (0.63%) from the previous trading day, at the Hana Bank dealing room in Jung-gu, Seoul. The won-dollar exchange rate started at 1,189.8 won, down 1.0 won from the previous trading day. Photo by Hyunmin Kim kimhyun81@

[Asia Economy Reporter Junho Hwang] It has been found that the severity risk of the COVID-19 variant Omicron is lower than that of previous variants, and with the inflation rise curve becoming more gradual compared to before, the increase in foreign investors' inflow into the domestic semiconductor sector may reflect an overall increase in preference for the index, according to a forecast. On the 25th, Junghoon Seo, a researcher at Samsung Securities, stated this in the 'Weekly Shot' report, saying, "It is time to consider the possibility of the peak-out of negative factors."

First, regarding Omicron, which had been weighing down the stock market, multiple research institutions have analyzed that the probability of severe illness from Omicron is about two-thirds lower compared to previous variants. This reduces the possibility of overloading the hospital bed system and decreases the necessity for lockdown measures. Although the scenario of Omicron becoming the dominant strain is threatening, its impact on economic reopening may be limited.

Inflation, which had been exerting downward pressure on the stock market along with COVID-19, has also weakened. The Consumer Confidence Index released by the Conference Board on the 22nd showed that the consumer outlook on U.S. inflation recorded the largest decline since July last year. The preliminary PMI figures (based on Markit) released during the month also showed a slowdown in the rise of various price-related indicators. Inflation reflected in bond yields is also stabilizing. The 5-year Treasury Breakeven Inflation (BEI), which indicates short-term expected inflation, dropped from around 3.2% last summer to about 2.8% in December. The '5-year, 5-year forward inflation expectation,' which reflects longer-term forecasts, is around 2.2%, stably within the Federal Reserve's target range. The benchmark U.S. 10-year Treasury yield has recently stabilized below the 1.5% level.

Investors are also prepared. The number of rate hikes priced into interest rate futures for next year is not significantly different from the expected path indicated by the Federal Reserve (Fed) officials' dot plot. Unless the Fed takes bold actions beyond this, market convulsions will also be limited.

Researcher Seo said, "Considering that the momentum of negative factors is also slowing, positive trends can be sufficiently expected after the beginning of the year when investors fully return," adding, "The shift in foreign investors' views on the semiconductor sector is likely to translate into a preference for the domestic index." He further predicted, "Interest will also remain valid in sectors such as automobiles, distribution, and construction, where the excessive decline has not yet been resolved and meaningful performance improvements are occurring simultaneously."

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