No Early-Year Rally in Domestic Stock Market... Will It Rebound After Seol?

[Asia Economy Reporter Kwon Jaehee] There was no 'early-year rally' with a strong stock market at the beginning of the new year. Amid growing pessimism about the domestic stock market, although the additional decline after the Lunar New Year holiday is expected to be limited, increased volatility is anticipated to push the KOSPI index down to the 2500 level.

According to the Korea Exchange on the 31st, on the last trading day before the Lunar New Year holiday, the 28th, the KOSPI closed at 2663.34, up 1.87% (48.85 points) from the previous trading day. Although the index fell below the 2600 mark during the day, hitting its lowest level in 14 months, it reversed to close higher.

The KOSDAQ also closed at 872.87, up 2.78% (23.64 points) from the previous day. The index showed a decline of more than 1% in the morning but drew a steep upward curve in the afternoon.

The domestic stock market has shown weakness for five consecutive trading days since the 21st, diminishing expectations for the usual 'early-year rally' where stock prices typically rise at the beginning of the year.

The background for the market weakness is attributed to fears of tightening by the U.S. Federal Reserve (Fed). As the Fed indicated it would proceed beyond tapering (asset purchase reduction) to quantitative tightening (balance sheet reduction), increasing pressure for interest rate hikes, global stock markets were suppressed.

Accordingly, the securities industry has suggested a KOSPI band of 2550 to 2700 after the Lunar New Year holiday. Due to the Fed's hawkish stance increasing KOSPI volatility, it seems difficult for the domestic stock market to regain momentum even after the holiday.

NH Investment & Securities expects the KOSPI to fluctuate between 2550 and 2700 after the Lunar New Year holiday and advises paying attention to major economic indicators scheduled for early February.

On February 1, domestic January export-import trends are scheduled to be announced, and on February 2 (U.S. local time), the U.S. January Institute for Supply Management (ISM) manufacturing index and the January employment index from the U.S. private employment research firm Automatic Data Processing (ADP) will be released.

Lee Jae-sun, a researcher at Hana Financial Investment, diagnosed that "additional downward pressure on the domestic stock market after the holiday will be limited." Comparing the current situation with the 2018 market conditions when U.S.-China conflicts peaked, Lee analyzed, "Both 2018 and now have experienced excessive sell-offs, but unlike in the past, there is no observed downward trend in KOSPI operating profits."

Han Ji-young, a researcher at Kiwoom Securities, said, "It will be influenced by indicators and events occurring during the Lunar New Year holiday, such as the U.S. ISM manufacturing index and whether the sharp decline in the U.S. stock market calms down," adding, "There is a possibility that volatility may temporarily expand as events that were not reflected during the market closure are simultaneously incorporated after the holiday."

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